KUALA LUMPUR: Malaysian banks will likely see weaker loan growth in 2023, amid inflationary pressures and slow economic activity, but they will continue to have a fairly good year ahead.
Several analysts expect the banks' loan growth to range from 4.0 to 5,5 per cent this year.
The local banking sector's loans growth shot up from 5.5 per cent year-on-year at end-November 2022 to 5.7 per cent at end-December, fuelled by both the household and business segments.
Kenanga Research and CGS CIMB Research expect loan growth to normalise at 4.0-4.5 per cent this year, while Hong Leong Investment Bank Bhd (HLIB) has forecast a 5.0-5.5 per cent expansion.
MIDF Research said with lending rates having nearly normalised and liquidity no longer as cheap, its system loan 2023 forecast was a muted 4.5-5.0 per cent.
"The sector must contend with several headwinds in the coming quarters: most notably asset quality issues stemming from RA (risk assessment) loan graduation. Additional issues include higher tech spend, cost inflation and liquidity pricing.
"While the sector no longer remains as attractive, we look to possible further Overnight Policy Rate (OPR)-hike uplifts to net interest income (NII), improved NOII (non-interest income) outlook and attractive dividend yields," MIDF Research said.
Kenanga Research, which maintained its "overweight" call on the sector, said banks would likely not be affected as drastically as other sectors. This is given their widely diversified exposure, with constant stress testing being conducted to strengthen preparedness.
"In the medium term, should macros not pan out to be worse than expected, we should see a strong earnings uplift sector-wide (more than 20 per cent earnings per share growth) coming from the relaxation of provisioning requirements, with possible write-backs to bolster earnings further," said its analyst Clement Chua, who maintained the firm's "overweight" call on the sector.
Chua does not expect another OPR hike by Bank Negara Malaysia as further observation was needed to meaningfully determine the tolerance of the financial system to accept another 25-basis-point increase.
Kenanga Research's top stock picks are Malayan Banking Bhd (Maybank), CIMB Group Holdings Bhd and Alliance Bank Malaysia Bhd.
The firm likes Maybank (target price of RM10.40) for its persistently high dividend cushion and leading market share, CIMB (TP: RM6.40) for its resilient non-interest income stream performance, and Alliance Bank (TP: RM4.20) for its strength in the small and medium enterprise space.
CGS-CIMB reaffirmed its "overweight" call on banks based on the potential rerating catalyst of continuous expansion in net interest margins amid an OPR upcycle, and stronger growth in non-interest income due to improvement in investment income in 2023.
The firm's suggested stocks are RHB Bank Bhd (TP: RM7.62) for its high dividend yield, Hong Leong Bank Bhd (TP: RM25.30) for its asset quality being among the best in the sector, and Public Bank Bhd (TP: RM5.20) for its lowest gross impaired loan ratio in the sector.
HLIB, on the other hand, has maintained its "neutral" call on the sector, as it believes the banking sector has a balanced risk-reward profile.
"Tailwinds which were supposed to be enjoyed by banks (like big net interest margin expansion and strong credit growth) over financial years 2022 to 2023 have instead been frontloaded to last year, turning the next 12 months to be less exciting," HLIB analyst Chan Jit Hoong said.
"Furthermore, banks may now have to grapple with possibly steeper cost of funds, smaller non-interest income, and loan growth. However, undemanding sector valuations and a decent dividend yield of 5.0 per cent are solace that would provide downside support to share prices," Chan added.
HLIB recommended RHB Bank Bhd (TP: RM6.60) for its high common equity tier-1 ratio and attractive price point, as well as Bank Islam Malaysia Bhd (TP: RM3) for its laggard share price performance and bright structural long-term growth prospects.
