KUALA LUMPUR, June 18 — AmBank Research has revised the banking sector’s calendarised core earnings growth target for 2020 to -15 per cent from -4.1 per cent previously.
The research house said banks’ first quarter 2020 (Q1) core earnings growth based on six banks, namely Maybank, Public Bank, RHB Bank, Hong Leong Bank, BIMB, and CIMB, slipped 11.3 per cent year-on-year.
This was due to lower interest income from overnight policy rate (OPR) cuts and higher provisions.
AmBank Research said earnings of Maybank, Public Bank, RHB Bank, Hong Leong Bank, and BIMB were within its expectations, while that of CIMB were below estimates due to higher provisions and weaker non-interest income (NOII).
AMMB and Alliance Bank’s results announcements are scheduled to be released on the fourth week of June.
In addition, loan growth continued to moderate to three per cent year-on-year in the Q1 with Maybank and CIMB’s higher than the industry’s domestic credit growth, partially offset by the slower growth of their international markets’ loans.
“We continue to expect the industry loan growth to be two per cent in 2020 versus 3.9 per cent in 2019.
“This will be supported by banks extending small and medium enterprise (SME) Special Relief facilities (SRF) to ease borrowers’ cash flows,” it said in a note today.
Meanwhile, the deferment of repayments of individual and SME loan borrowers for those opting for the six-month moratorium is also expected to contribute to a higher outstanding loan base for banks.
“Recall, interest will continue to be accrued for individual and SME loans except for fixed rate financing despite no payments from the borrowers,” AmBank Research added.
The sector’s net interest margin (NIM) fell 10 basis points quarter-on-quarter in Q1 due to the OPR cuts of 25 basis points each in January and March 2020.
“Our banks’ earnings have already factored in 100 basis points of rate reduction for this year, which includes the 50 basis points OPR cut announced on May 5, 2020,” it said.
“The next Monetary Policy Committee meeting will be on July 7, 2020.
“We are monitoring the interest rate swap and KLIBOR closely. At this moment, we do not see another 25 basis points cut in the OPR priced in as yet by the market based on the latest interest swap rate.
“Regionally, Thailand, Indonesia and the Philippines have kept their interest rates unchanged in April and May. For 2020, we expect NIM for the sector to be compressed by six basis points and a lower NIM contraction of one — two basis points on average in 2021,” the research house said.
For 2021, AmBank Research projects a recovery in earnings to +6.6 per cent based on expectation of lower pressure on interest margins while credit cost remains elevated.
It also maintains a neutral call on the sector on concerns in upticks in loan impairment after the loan moratorium.
“We have rolled over our valuation to financial year 2021 for banks with financial years ending December. Our top picks remain Maybank, RHB Bank and Hong Leong Bank,” it noted. — Bernama
