Maybank cuts view on Malaysian banking sector to ‘neutral' as tariffs, slower GDP weigh on earnings

Business Times

3 days ago

[SINGAPORE] Maybank Investment Bank has downgraded its rating for the Malaysian banking sector to 'neutral', from 'positive' previously, due to slower gross domestic product growth (GDP), subdued earnings prospects, and macroeconomic uncertainty.
Despite the downgrade, the bank's analyst, Desmond Ch'ng, said in a note on Tuesday (Jun 3) that Maybank still recommended 'buy' calls for Public Bank, AMMB (AmBank), Hong Leong Bank, and Hong Leong Financial Group – in this order of preference –citing strong management, prudent credit buffers, and resilient fundamentals.
Disappointing performance
Overall, Ch'ng noted that the results for the first quarter of FY2025 were 'lacklustre' and that no bank surprised positively as the results of several – such as Hong Leong Bank, Hong Leong Financial Group, RHB Bank, Public Bank and Bank Islam Malaysia (BIMB) – came in below expectations.
For instance, on a quarter-on-quarter basis, Hong Leong Bank's core net profit dipped 8 per cent to RM1.1 billion (S$333.6 million), while RHB Bank saw a 10 per cent decline to RM750 million. Public Bank's core net profit fell 3 per cent to RM1.75 billion.
On BIMB, Ch'ng highlighted that the bank was falling short of its full-year return on equity target of 8 per cent, having achieved only 7.6 per cent.
That said, Ch'ng noted that Alliance Bank Malaysia, AmBank, CIMB Group Holdings (CIMB), and Maybank had results that were within consensus' expectations.
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Alliance Bank's core net profit rose 6 per cent quarter-on-quarter to RM197 million for the first quarter of FY2025; AmBank's increased 6 per cent to RM514 million; CIMB posted a 10 per cent improvement to RM2 billion; and Maybank recorded a 2 per cent uptick to RM2.6 billion.
Still, sector-wide indicators point to a muted quarter.
For example, cumulative loan growth slowed to 4.4 per cent year-on-year as at end-March 2025, down from 5.5 per cent previously.
Meanwhile, net interest margins also narrowed further to 2.07 per cent, continuing a downward trend, while fee income rose just 1 per cent year-on-year, a sharp pullback from last year's double-digit growth.
Lowered GDP forecasts
In terms of GDP growth, Ch'ng said that Maybank's economics team has lowered its forecast across the region due to the widespread tariffs imposed by US President Donald Trump and heightened global economic uncertainty.
For Malaysia, Maybank has lowered its GDP growth forecast to 4.1 per cent in 2025 and 4.2 per cent in 2026, down from earlier projections of 4.9 per cent and 4.6 per cent respectively.
In comparison, Singapore's growth is now expected to come in at 2.4 per cent in 2025 – from 2.6 per cent – and 1.8 per cent in 2026.
Indonesia's 2025 growth forecast has been cut to 1.7 per cent, from 2.55 per cent previously, while the 2026 forecast remains unchanged at 4.7 per cent.
Ch'ng added that Maybank expects the US Federal Reserve to cut the Fed Funds Rate by 75 basis points in 2025, followed by a further 50 basis points in 2026.
In Malaysia, a 25-basis-point rate cut is anticipated in the second half of 2025. Meanwhile, the 3-month Singapore Overnight Rate Average is expected to moderate from 2.28 per cent currently to 1.7 per cent in 2025, and further to 1.4 per cent in 2026.
In Indonesia, the benchmark rate, currently at 5.50 per cent, is projected to fall by 25 basis points in the first half of 2025, and by another 50 basis points in 2026, bringing it to 4.75 per cent.
Taking these into account, Maybank has lowered its earnings estimates for Malaysia's banks by 5 per cent in 2025 and 4 per cent in 2026.
'Buy' picks
On its 'buy' calls, Ch'ng said Public Bank is seen as well-managed with sufficient credit buffers and rising non-interest income.
AmBank, he said, is focused on funding cost control and business banking, with potential for higher dividends.
As for Hong Leong Bank, it stands out for its strong asset quality and liquidity, while Hong Leong Financial Group provides cheaper exposure to Hong Leong Bank, albeit with lower liquidity.