PETALING JAYA: The home banking system’s earnings are on a restoration mode with higher profitability anticipated this 12 months resulting from decrease mortgage loss provisioning (LLP) and higher net interest margin (NIM).
Most analysts anticipate banks to report higher income within the subsequent quarters after a comparatively improved displaying within the fourth quarter of 2021.
They forecast that Bank Negara would increase the important thing benchmark interest charge or in a single day coverage charge (OPR) within the second half of the 12 months to curb inflationary pressures. A higher charge would translate into higher NIM for banks.
NIM is a measure of profitability for banks and refers back to the distinction between interest obtained and interest paid out by the banks.
Bank Negara has stored the OPR at 1.75%, which is at an all-time low since July 7, 2020.
CGS-CIMB Research banking analyst Winson Ng is reiterating an “overweight” ranking on banks as he expects earnings restoration to proceed in 2022 and 2023.
“Potential re-rating catalysts include an expansion in NIM following the expected OPR hike in the second half of this year, and a downcycle in LLP.
“In the longer term, there could be potential write-back of the management overlay provided by the banks for Covid-19 credit risks if the banks’ gross impaired loan ratios do not increase significantly in 2022.
“While Malaysian banks have negligible direct exposures to Russia and Ukraine, we believe they would be indirectly impacted if the energy and raw material prices remain higher for a prolonged period as it could hurt global economic growth.
“Our picks for the sector are Hong Leong Bank Bhd
, RHB Bank Bhd and Public Bank Bhd,” he added.
Banks’ fourth quarter earnings have been above the analysis home’s expectations with six out of eight Malaysian banks beneath its protection reporting better-than-projected fourth quarter 2021 earnings resulting from higher net interest earnings and decrease LLP.
The sector’s core net revenue (CNP) grew 42.5% year-on-year (y-o-y) within the fourth quarter, pushed by a 62.7% y-o-y plunge in LLP.
Ng stated: “We expect the banks’ first quarter 2022 aggregate CNP to be close to the fourth quarter 2021 levels of RM6.5bil, as the additional tax expense under Cukai Makmur (CM) would be offset by higher non-interest income in the first quarter of 2022 (from improved investment income).
“Nevertheless, the first quarter CNP could see a single-digit y-o-y decline, dragged down by the CM taxation.”
Despite the unfavorable impression of the CM taxation, Ng projected a CNP progress of 4.1% for the banks, underpinned by an anticipated 16% decline in LLP this 12 months, and a turnaround in non-interest earnings from a decline of 15.2% in 2021 to an growth of 10.2% this 12 months.
