KUALA LUMPUR: The banking sector is expected to post five to six per cent growth in net profit year-on-year (YoY) in the financial year 2024 (FY24) and FY25, according to RHB Research.
The research house said this will be supported by the rebound of non-interest income (NII) from stabilising net interest margin (NIM) and continued loan growth.
"We assume credit cost stays broadly stable but, despite the strong start to non-interest income (non-II), also expect a moderation in growth to six per cent YoY (2023: +30 per cent)," it said in a note.
Malaysia banks had a good start to the year, thanks to operating income strength – underpinned by both NII and non-II, while asset quality held up.
Of the eight banks under its coverage, seven posted results that met its expectations. Bank Islam Malaysia Bhd was the sole disappointment due to weaker-than-expected non-financing income.
RHB Research said banks continue to appear guarded with respect to the macroeconomic outlook, citing factors such as geopolitical uncertainties, a higher-for-longer global interest rate environment, inflationary pressures and, domestically, the normalisation of interest rates, among others.
That said, the firm notes optimism on NIMs ahead as banks continue with efforts to lower funding cost and improve asset yields.
As for loans, RHB research said demand remains supported by retail loans, small and medium enterprises (SMEs), and the rollout of infrastructure projects, but some banks could pare back growth in the quarters ahead to conserve capital and if margins are too thin.
Also, it said some banks mentioned that capital markets-related fee income and trading gains are harder to forecast, as these depend on market opportunities – implying that first quarter (Q1) 2024 non-II may be challenging to repeat.
"Finally, while there were upticks in gross impaired loan (GIL) for the retail and SME portfolios, overall asset quality continues to hold up. "This, coupled with overlay buffers in banks' books, should help keep credit cost in check," it said. RHB research remains Neutral on the sector amid moderating earnings growth prospects, and continues to prefer growth stocks with reasonable valuations.
"Our top picks include (in order of preference), CIMB Bank Bhd, AMMB Holdings Bhd (Ambank Group) , Hong Leong Bank Bhd, Alliance Bank Malaysia Bhd and Public Bank Bhd," it added.