Analysts retain ‘Overweight’ on banks

Household loans plays a pivotal role, registering a 5.2% YoY increase, while the non-household segment faces a slight drop 

TWO local equity research houses are reinforcing their positive outlook on Malaysian banks, maintaining an ‘Overweight’ stance even amid a challenging economic environment. 

“Despite margin pressure and moderating loans growth, banks have implemented effective measures to support earnings and dividend growth. This demonstrates their ability to navigate challenging market conditions,” said RHB Research. 

In a note last week, it said the system loans in Malaysia experienced steady growth, expanding by 4.5% year-on-year (YoY) in April. 

Household loans played a pivotal role, registering a 5.2% YoY increase. However, the non-household segment faced a slight decline, primarily driven by the manufacturing sector. 

Echoing this sentiment, Kenanga Research noted the importance of loans to small and medium enterprises (SMEs) as a key driver of growth, with new business opportunities leading to potential current account and savings account (CASA) openings. 

“Loans to SMEs present significant growth opportunities for banks, particularly in terms of new CASA openings. The focus on this segment indicates the banks’ commitment to supporting the growth of small businesses in Malaysia,” Kenanga said. 

Tight deposit competition has compressed net interest margins (NIM) for Malaysian banks, as noted by both research reports. However, analysts believe that banks have effectively navigated this challenge. 

RHB asserts that banks have implemented robust strategies to support earnings and dividend growth despite margin pressure. 

On its part, Kenanga highlights the potential for recovery in treasury and investment returns, which may help offset slower traction in investment banking segments and bolster the wealth management space. 

Addressing concerns about asset quality, RHB and Kenanga pointed out that banks have maintained sound provisions, with the system loan loss coverage (LLC) ratio at an impressive 94%. This level of provision provides a buffer to address potential asset quality weaknesses in the near term. 

While gross impaired loans (GILs) have seen some minor upticks, largely due to customers exiting repayment assistance programmes, the overall stability of asset quality is highlighted by both reports. 

The dominance of local listed banks in the Malaysian market remains a key trend, with a market share of 76.8% in the first quarter of 2023, according to Kenanga. 

Among the major players, Malayan Banking Bhd, CIMB Bank Bhd and Public Bank Bhd have maintained their positions. 

Kenanga Research projects a tapering of loan growth in 2023, with system growth expected to be around 4%-4.5%, reflecting an anticipated economic slowdown. 

Despite these challenges, analysts maintain an overweight stance, capitalising on the attractive dividend yields offered by the banking sector. TMR 


  • This article first appeared in The Malaysian Reserve weekly print edition