PETALING JAYA: Banks’ profitability is expected to remain intact with the stability in net interest margins (NIMs) – a measure of earnings for banks, as competition for deposits abates, according to Hong Leong Investment Bank (HLIB) Research.
The research house expects NIM to be fairly stable in the second quarter of 2024 (2Q24) considering the fact that banks are generally stricter with their loans and deposits pricing.
Also, it said fixed deposit competition is less intense, noting that, however, that credit growth is seen to taper as a result of their NIM preservation strategy.
NIM is defined as the spread bank earns between borrowing and lending. A wider NIM indicates higher earnings for banks.
“We are not unduly worried about asset quality since banks are better equipped versus prior slumps, the large loan loss provision built up over the past three years acts as a robust buffer to cushion any potential spike in gross impaired loan ratio.“We are projecting a two-year aggregate profit compounded annual growth rate of 4.7% (calendar year 2023 to 2025) for the banking sector,” the research house added.
Analysts are upbeat on loan growth prospects for this year, underpinned by an increase in consumer and business loans.
TA Research, in a recent report, said it is raising its loan growth forecast for 2024 from 5.8% to 6.1%, underpinned by increases in consumer and business loans of 6.3% (from 5.9%) and 5.9% (from 5.6%) respectively.MIDF Research is maintaining a “positive” outlook for the local banking sector, adding that it is premised on Bank Negara’s initiatives to preserve liquidity in the economy, while resilient retail loan yields and a strong pipeline should prevent any slowdown in take-up until at least next year.
HLIB Research, which is maintaining its “neutral” stance on the banking sector, said the risk-reward now is more balanced as there are no new positive catalysts to spur share prices significantly higher.
“We are projecting financial year 2024 (FY24) and FY25 sector profit to grow at a slower rate of 6% and 4% respectively, versus 15% in FY23, which lags the broader market as well. The FBM KLCI is seen to rise at a quicker 7% in FY24,” it said.