KUALA LUMPUR: The banking sector is likely to see a pick up in earnings momentum for 2024 until 2026 due to expansion in operating income.
Affin Hwang Investment Bank forecasted a net earnings growth of 9.8 per cent, 5.2 per cent and 4.2 per cent year-on-year (YoY) for the sector in 2024, 2025 and 2026.
This will be driven by more robust loan growth, acceleration of domestic infrastructure/ construction projects, the Malaysia-Singapore Special Economic Zone, renewable energy investments and recovery in the global semiconductor market.
Other contributing factors are increased tourism activities, resilient household spending, recovery in the real-estate market and a more extensive adoption of EVs as installation of charging stations are being ramped up.
Meanwhile, households' debt-servicing capacity remains supported by favourable labour market conditions and wage growth, while the business operating outlook turns more upbeat.
"We expect the system gross impaired loan ratio to gravitate towards 1.5 per cent by end-2024 (from 1.65 per cent in 2023)," it said in a note.
Affin Hwang projected net interest margin to average at 2.06-2.10 per cent from 2024-2026 on the back of loan growth at 5.5-6.0 per cent per annum.
"We remain confident in the banking sector's 2024-2026 earnings outlook and believe that banks may continue to rerate to higher price-to-book volume multiples through potential return on equity expansion towards 11-12 per cent," it added.
The firm noted that the overall credit to private non-financial sector saw growth hovering at 5.4 per cent YoY in November, underpinned by loans at 5.8 per cent YoY and corporate bonds at 3.8 per cent YoY.
The year-to-date loan growth of 4.7 per cent and the annualised rate of 5.2 per cent is likely to meet Affin hwang's full year expectation of 5.5 per cent for 2024, as it expects more robust growth in December.
A few trends that will shape the banking sector this year include a benign rate environment which will help to further ease up dollar liquidity and improve funding access and hedging cost.
This allows banks to play a more dynamic role in capital market activities. It also said that banks may start pursuing mergers and acquisitions and partnerships to further cement their market share and expand revenue drivers, hence fuelling more competition.
"For instance, a potential entry of a foreign banking player into Alliance Bank may fuel more game-changers in the industry.
"Recently, we also saw CIMB Group signing a partnership with Shanghai Pudong Development Bank to provide a suite of solutions and services to fast-track expansion of the Chinese lender's clients in Asean," it said.
Another trend that will influence the sector is local banks' recognition of their capabilities and strengths in certain lending activities and locations.
Both CIMB and Malayan Banking Bhd (Maybank) are vying to be the dominant Malaysian-based banks in the Johor-Singapore cross-border banking flows.
"Maybank is understandably a Data Centre real-estate financing player, RHB Bank is gaining foothold in the Johor and Sarawak markets, Affin Bank Bhd is being seen as the 'Loan Syndication Player' in Sarawak while Public Bank Bhd and Hong Leong Bank Bhd remain as prudent-lending banks, with dominant market share in the retail markets," it said.
The firm kept its 'Overweight' call on the sector.