Research houses upbeat on banking sector this year
Published on: Friday, February 02, 2024
By: Bernama
Kenanga Research has maintained an ‘overweight’ call on the banking sector and its top pick for the first quarter of 2024 is Ambank Group.
PETALING JAYA: Research houses continued to have a positive stance on the banking sector this year, expecting it to be resilient based on a stronger economic outlook and supported by the roll-out of public infrastructure projects with renewed foreign investor interest.
In a statement, Kenanga Research said it has maintained an “overweight” call on the sector after the sector closed the year 2023 with a bang.
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The research house noted that system loans in December 2023 increased by 5.3%, surpassing its 4% to 4.5% expectation, thanks to a strong month-on-month influx of working capital loans.
“This may be due to further frontloading to meet a relatively later Chinese New Year season, as seen by a spike in application.
“The industry gross impaired loan (GIL) ratio remained light at 1.65% and is expected to remain at these levels which are pre-pandemic levels,” it said.
It noted that the deposit growth was also slightly above expectations at 5.6% from our anticipated 5% to 5.5%, with current account savings account (CASA) levels likely to widen in the near term to fuel festive spending.
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Kenanga said it also expects the overnight policy rate (OPR) to remain at a steady state of 3% until the end of 2024, with any changes likely to be “downside-biased concurrently with regional monetary policies.”
“Our sector top pick for first quarter 2024 (Q1 2024) is Ambank Group, as its plausible consolidation angle is validated by its rejuvenated earnings with an anticipated knee-jerk interest following an upcoming tax credit gain in Q1 2024.
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“We bring attention to Malayan Banking Bhd for its sustainable and leading dividend returns amongst the large-cap banks at around 7%. Being the leading bank in terms of market share, the bank could also be viewed as the best beneficiary for stronger economic activity,” it added.
Maybank Research also maintained its positive stance on the sector, noting that what started as a slow year for lending up to July 2023 (2.7% loan growth), was compensated by a pick-up in momentum in the second half of 2023 (H2 2023), exceeding its forecast of 4.6%.
“Industry loan growth saw a last-minute spurt to end 2023 up 5.3% year-on-year against our estimated loan growth, compared against loan growth of 5.7% in 2022.
“Household loan growth held up at 5.8% against 5.9% in 2022, while non-household loan growth lagged somewhat at 4.5% at the end of 2023 against 5.3% end-2022, but the momentum had gathered pace in the last two months of 2023,” it noted.
On the corporate front, it said lending to mining, oil and gas; fishing, aquaculture; and palm oil processing saw double-digit growth.
It pointed out that the resumption of CASA growth would also help to ease some of the funding pressure that the banks are currently facing.
On the upside risks, the research house said stronger-than-expected gross domestic product (GDP) growth would contribute to stronger loan growth and lower credit risks, as well as improved liquidity which would help to sustain interest margins.
As for the downside risks, it said weaker-than-expected GDP growth could lead to slower loan growth and asset quality issues, while potential interest rate cuts could negatively impact interest margins in the short term and a slowdown in CASA growth could exacerbate deposit competition.
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