KUALA LUMPUR: The banking sector still lacks meaningful tailwinds despite recording accelerated loans growth in June.
Hong Leong Investment Bank Bhd (HLIB) projected the sector's earnings to rise at a slower clip of six per cent, and four per cent for 2024 and 2025 respectively, versus 15 per cent in 2023.
Its return on equity (ROE) is expected to be broadly flat at 9.2 per cent in 2024 and 2025 versus 9.1 per cent in 2023.
"However, the market continues to be upbeat on the sector and we do not want to be caught wrong footed and oppose the trend. Thus, we feel it is not the right time to be a 'Debbie Downer' yet.
"For now, valuations are not too excessive, foreigners still have appetite for Malaysian banks, and the Employees Provident Fund has higher local investment allocation," it said.
The sector's loans expanded 6.4 per cent year-on-year (YoY) in June, led by the business segment (up 5.6 per cent) while household remained steadfast (up 6.4 per cent).
For the business segment, it was supported by both working capital and investment-related loans while household saw robust showing across all sub-segments.
"Overall, system loans growth was again higher vs our full-year financial year 2024 (FY24) forecast of 5.0-5.5 per cent YoY. as such, we revise it up to 5.5-6.0 per cent," it said.
The upward revision was premised on six consecutive months of outperformance, quicker monthly growth in June and strong advanced gross domestic product estimates.
HLIB has "Buy" calls on Public Bank Bhd with a target price of RM4.90 and Ambank Holdings Bhd (target price: RM4.60).
Meanwhile, RHB Investment Bank Bhd said year-to-date system loan applications rose four per cent YoY with loan applications from businesses growing at a faster clip of four per cent vs three per cent from the household segment.
Loan approvals also exhibited the same trend, with business loan approvals up four per cent while household approvals rose by two per cent in the same period.
"This lends further weight to our expectation of loan growth potentially slowing down in the second half of 2024, as households still form the bulk of the banking system at about 59 per cent," it said.
RHB Research added that the average interest spread in the second quarter of 2024 were flat YoY and QoQ.
"We think sector net interest margin (NIM) could be flat-to-slightly-better in the upcoming reporting season. From meetings with the banks, we gather that competition for loan rates has been stiff, but the banks have also been diligently cutting (board and promotional) deposit rates to provide some support to NIM and bottom lines."