KUALA LUMPUR: Hong Leong Investment Bank Bhd (HLIB Research) views the domestic banking sector positively and opines that the risk-reward profile is skewed to the upside.
HLIB Research said this was due to robust profit growth and undemanding valuations that would be the impetus driving performance.
For large-sized banks, HLIB Research likes Malayan Banking Bhd (Maybank) for its strong dividend yield.
For mid-sized banks, RHB Bank Bhd is favoured for its high Common Equity Tier 1 (CET1) ratio and attractive price point.
For small-sized banks, all three under its coverage are 'Buy' calls for different reasons - Bank Islam Malaysia Bhd (BIMB) for its laggard share price showing, Affin Bank Bhd is adored for its special dividend potential and strong financial metrics and Alliance Bank Malaysia Bhd for its cash dividend yield of six to seven per cent and large management provision overlay buffer.
HLIB Research further said the banking sector's loans and deposits growth gained traction at 6.8 per cent and 7.5 per cent year-on-year (YoY), respectively.
"Also, leading indicators remained robust, and asset quality held steady," it said.
HLIB expects net interest margin (NIM) to broaden from the Overnight Policy Rate (OPR) hikes. However, the magnitude may be capped by the downward normalisation of the current account savings account (CASA) mix.
"Nonetheless, banks are still net beneficiaries of the interest rate upcycle.
"Overall, we continue to view the banking sector positively and opine the risk-reward profile is skewed to the upside—the cocktail of robust profit growth and undemanding valuations will be the impetus to drive performance," it said.
HLIB has retained its 'Overweight' call on the sector.