KUALA LUMPUR, July 20 — Maybank Investment Bank (Maybank IB) remains positive on the Malaysian banking sector despite the challenging macro outlook into 2023, saying there is room to surprise positively should pre-emptive provisions be gradually released.
In a research note today, the bank said it has factored in sufficient credit cost buffers into its earnings projections.
“Moreover, we have baked in the margin impact of just one rate hike into our earnings thus far, on conservative grounds.
“(Hence) we remain positive with ‘buys’ on Hong Leong Bank Bhd (HL Bank), RHB Bank Bhd, AMMB Holdings Bhd, Alliance Bank Malaysia Bhd and Hong Leong Financial Group,” it said.
Maybank IB said banks have been setting aside pre-emptive provisions since the first quarter of 2020 — the start of the Covid-19 pandemic — and in totality, the banks in its coverage have set aside an estimated RM9.5 billion of such provisions.
On loans under repayment assistance (RA), Maybank IB said they have fallen from a peak of about 25 per cent (RM440 billion) of total loans in October/November 2021 to about eight per cent (RM142 billion) in April 2022.
According to the bank, there is room to surprise positively through provision write-backs should loans under RA continue to trend down and should asset quality prove to be more resilient than expected.
Maybank IB said its stress test assumed a 20 per cent default rate and a 30 per cent loss given the default rate on loans under RA.
“Hypothetically, on the assumption that banks wrote back 50 per cent of their pre-emptive provisions in a single financial year, this could enhance their FY2023 net profit by between 12 per cent (HL Bank) and 38 per cent (Alliance Bank),” it said.
On the macro outlook into 2023, Maybank IB noted it remains challenging, with the consumer price index expected to hit 3.4 per cent in 2022 and 4.1 per cent in 2023.
Meanwhile, the domestic Gross Domestic Product is expected to expand at a slower rate of four per cent in 2023 versus six per cent in 2022, it said.
“We have been wary of these macro developments for a while now and on a calendarised basis, we have kept credit costs assumptions elevated at 37 basis points in 2022 and 34 basis points in 2023, against a pre-Covid average of 28 basis points from financial years 2017 to 2019.
“In summary, we do think we have built in sufficient buffers into our earnings against slower economic growth in 2023 at this stage,” it added. — Bernama
