KUALA LUMPUR: A more favourable environment for the performance of banking stocks this year is suggested by a favourable macroeconomic environment and diminishing headwinds on margins and asset quality, according to RHB Research.
Regarding the gross domestic product (GDP) growth estimates for the United States and China, the investment bank's economics unit is outperforming the market, which should provide a more optimistic outlook for the Asean economies.
RHB Economics thinks the Federal Funds Rate (FFR) has peaked at 5.25 to 5.50 per cent and pencilled in two rate cuts in the second half of 2024 (2H24).
Closer to home, Malaysia's 2024 GDP growth is projected at 4.6 per cent year-on-year (YoY), while Bank Negara Malaysia is expected to stay pat on the overnight policy rate at three per cent, it said in a note.
Nevertheless, RHB Research said the anticipated normalisation of tax rates in 2023 suggests a deceleration in the sector's earnings growth to six per cent year-on-year (YoY) in 2024, compared to a more robust 11 per cent in 2023.
This lags behind its projected normalised earnings growth of approximately 10 per cent YoY for both the FBM KLCI and the coverage basket in 2024.
As a result, the investment bank remains "neutral" in the banking industry and does not observe any appreciable overall outperformance.
Its top picks include CIMB Group Holdings Bhd, AMMB Holdings Bhd (AmBank Group), Hong Leong Bank Bhd, and Alliance Bank Malaysia Bhd.
Meanwhile, RHB Research predicts a 5.0 per cent YoY growth in operating income for 2024, driven by both net interest income (NII) and non-interest income (non-II). This contrasts with the market-driven non-II, which was forecast to grow by two per cent YoY in 2023.
With sector net interest margin (NIM) having compressed by 21 basis points (bps) in the 2023 forecast, RHB Research expects NIM to stabilise in 2024 on the key assumption that deposits and loan competition remain rational.
As for loan growth, the investment bank expects a mild pickup in system loan growth to 4.5 to five per cent, led by stronger credit demand from the business segment as global trade improves as well as the rollout of infrastructure projects and initiatives under the various master plans.
On the flip side, it said the pace of growth in non-II in 2024 (forecast to rise six per cent YoY) is unlikely to parallel the remarkable 21 per cent YoY rise observed in the 2023 forecast.
This is primarily attributed to a moderation in the growth of non-fee-based income.
Additionally, RHB also noted that asset quality remains stable, with concerns in Thailand's SME segment.
It added that most banks retain overlay buffers for potential issues, and a slight improvement in sector credit costs is expected in 2024.
In 2024, RHB Research said the banking sector is anticipated to see a six per cent YoY increase in profit before tax (PBT) compared to a two per cent YoY growth in 2023.
However, bottomline growth is expected to moderate to a trend of six per cent YoY, contrasting with 11 per cent YoY in 2023.