Banking sector to ride the storm post pandemic

by BERNAMA / pic by TMR FILE

DESPITE added pressure due to a possible increase in non-performing loans, as well as lesser financial buffer, the financial sector will be able to ride the storm and make a steady comeback post COVID-19.

Kenanga research, in its equity report today, said that despite the recent spike in COVID-19 cases in the country, the banking sector will remain strong as targeted assistance approach will likely be favoured by the authorities compared to the earlier broad-brush loan moratorium.

“Asset quality is the key challenge ahead. Automatic loan moratorium, targeted loan assistance and various SME (small and medium enterprise) lending programmes provide band-aids that mask the true impact of the economic downturn on asset quality, while buying banks time to build up loan loss reserves.

“Potentially, investors may have to wait until the second half of 2021 before a better picture emerges as to the adequacy of these reserves,” it said.

Given the delay, it said the situation may also keep a lid on dividends pay-outs by the banks.

“Banks with solid asset quality offer better earnings predictability, which, in turn, underpins dividend payments,” it said.

Banking stocks performed well in the morning session today as Maybank added nine sen to RM7.21, CIMB climbed two sen to RM3.08, Hong Leong Financial gained 20 sen to RM14.40, RHB rose seven sen to RM4.57, and Public Bank up four sen to RM15.84.

On the overall index performance, it rose 0.77 per cent to 12,506.65.