KUALA LUMPUR, Feb 23 — Earnings in the banking sector in the fourth quarter of 2023 (4Q 2023) are expected to come in neutral to muted due to seasonal competition and a mixed net order imbalance indicator (NOII) outlook, said MIDF Amanah Investment Bhd.

The potential national clearing code (NCC) spikes are also expected to affect earnings in that quarter.

In its research note, the company expected the NOII to provide the largest source of uncertainty, especially on the trading income end, with foreign exchange (forex) and loan-related fee income expected to provide some uplift.

It said deposit competition, as alluded to by multiple banks, seems a lot more rational this time around where most banks feared a repeat of last year’s deposit competition situation, have gone out of the way to stock up on liquidity in prior quarters.

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“Both Bank Negara Malaysia’s (BNM) statistics and 4Q 2023 preview imply that interest rates have not increased by too much, though Islamic rates remain more elevated than conventional counterparts.

“We are wary of a huge surge in pricier non-retail current account savings account (CASA) which may weigh down some banks,” it said.

On the other hand, the company also predicted a higher NCC with expected kitchen sinking situation.

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It said though writebacks are possible in some cases, especially with most banks’ worst asset quality days behind them, and BNM pressuring for overlay reclassification or removal, some disappointments are to be expected.

“BNM statistics point towards 4Q 2023’s NCC being much higher than the previous three quarters, Ambank Holdings Bhd will likely utilise the proceeds for tax-credit write-off for a large provision, where we believe other banks with low limited liability company (LLC) or guiding for further asset quality issues would do the same.

MIDF said the 4Q and second quarter (2Q) are auditing quarters, where this is often associated with surprise provisions.

Meanwhile, the research firm selected CIMB Group as its top pick with a “buy” call with a target price (TP) of RM6.82 and Alliance Bank Malaysia Bhd (ABMB) with a TP of RM4.08.

It said CIMB Niaga is still going strong, with digital initiatives to come online soon and with further cost takeouts expected, albeit post financial year 2024 (FY2024).

“ABMB were chosen as the bank had strong loan growth to persist with a good operating expense outlook for the second half of 2024 and the worst asset issue had been overcome,” it said. — Bernama