No negative surprises in banking sector in 3Q, say analysts

KUALA LUMPUR, Dec 4 — There were no negative surprises from local banks in their results for the third quarter ended Sept 30, 2018 (3Q18) despite some pressures on net interest income and non-interest income due to volatility in the market.

MIDF Amanah Investment Bank’s Senior Analyst Imran Yassin Yusof said the banking sector’s performance within its coverage was within expectations, with RHB performing at the upper bound of its expectations.

He observed that banks which were mostly confined to Malaysia have performed well, although Maybank and CIMB’s performances were slightly disappointing owing to their regional exposure in Indonesia.

The better performance was mainly due to the lower impairments in most banks as asset quality remained solid, he said.

“Loans growth was also robust despite moderate Gross Domestic Product (GDP) growth, with the consumer segment being the key driver led by mortgage.

“The robust loan growth cushioned the impact of net interest margin compression which came about from deposit competition. Moving forward, we foresee the trend will continue into 2019,” he told Bernama.

However, Imran said the extension of the net stable funding ratio (NSFR) observation period until 2020 would ease the pressure of deposit competition and net interest margin would stabilise in 2019.

He said the earnings momentum was expected to be maintained next year, driven by loans growth in the consumer segment, especially mortgages.

Imran noted that the uncertainties surrounding Malaysia’s economic policy had also been lifted following the tabling of the 11th Malaysian Plan’s mid-term review and the 2019 Budget.

“We will likely see some pressure on net interest income and also on non-interest income due to volatility in our market, but other than that, banks should perform within expectations,” he added.

Another bank analyst, who declined to be named, said the banking sector’s performance for the third quarter was within expectations.

He said shifts in domestic policies and external trade had dragged banks’ earnings, especially from fee-based incomes.

“Generally banks are doing considerably well due to lower-than-expected impairment allowances.

“With the implementation of the Malaysian Financial Reporting Standard 9 (MFRS9) this year, credit charge was expected to go up, but so far this has not been the case,” he said.

With system loans recording a 5.7 per cent growth year-on-year as at September this year, he said only CIMB, Bank Islam and Ambank had outpaced it.

“Higher net interest margin will enhance net interest income, mitigating the effect of moderate loans. But currently most banks are suffering net interest margin compression due high cost of funds and with the moderate loans, banks are reporting moderate net interest income,” he said.

Meanwhile, Nomura Research’s Head of Malaysia Equity Research Tushar Mohata said most of the banks results were in line with or slightly below estimates.

Going forward, he said the impact of slower Malaysia’s GDP growth might be felt in loans growth and credit cost might rise.

“However, we are positive on Maybank, Public Bank, Ambank and CIMB stocks,” he added. — Bernama

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