Banking sector earnings outlook constructive
TA Research said the banking sector's earnings are projected to expand by 4.6% to RM37.3bil.
PETALING JAYA: Amid macroeconomic uncertainties, the earnings outlook for the banking sector remains resilient this year.
TA Research, in a report, said the domestic banking sector's earnings are constructive.
The sector's earnings are projected to expand by 4.6% to RM37.3bil, underpinned by sound fundamentals and continued operational resilience, it noted.
The research house said loan growth is expected to accelerate by 5.7%, supported by healthy demand across both retail and business segments.
'With margins likely to stay relatively stable, net interest income (NII) is forecast to rise by 4.3%.
'Islamic banking contributions are also set to see healthy momentum, with growth anticipated at 7% driven by deeper market penetration and rising customer adoption of syariah-compliant offerings.
'Non-NII is poised for an 8.7% uplift, reflecting stronger fee income traction and broader diversification across bancassurance, wealth, and digital services,' the research house said.
It said banks' asset quality is projected to remain broadly stable, with the sector's credit cost expected to ease slightly to 27.9 basis points (bps), further cushioning profitability.
'Meanwhile, robust capital and liquidity buffers position banks to pursue growth opportunities and withstand potential external shocks.
'Overall, we maintain a 'positive' stance on the sector's earnings trajectory.
'With the positive indicators, we maintain an 'overweight' stance on the sector,' TA Research said. Its top recommendations are CIMB Group Holdings Bhd , Public Bank Bhd and Hong Leong Bank Bhd .
On the risks and challenges, the research house said while the outlook for the banking sector remained broadly positive, there are several risks worth monitoring.
A key concern is the potential deterioration in asset quality should external shocks emerge, especially in a still-fragile global economic environment.
'Softer contributions from regional operations may also materialise if the ringgit strengthens further thus eroding foreign-sourced earnings.
'On the domestic front, rising competition in loan pricing could lead to some margin compression while sustained investments in technology and talent may keep overhead costs elevated in the near term.
'Additionally, while banks remain committed to dividend payouts, these could come under pressure as the sector prepares for the potential capital impact from the implementation of Basel 3.5.
'That said, we believe the sector is still well-supported by solid fundamentals, with stable asset quality, healthy capital buffers, and decent income growth cushioning against the risks,' TA Research said.
Meanwhile, CIMB Research has maintained its 'neutral' rating on the banking sector.
The research house's 'buy' picks are Alliance Bank Malaysia Bhd , Hong Leong Bank, Public Bank and RHB Bank Bhd.
'We expect banks' share prices to trade range bound over the next few months until there is greater clarity on the macro tariffs and cost situation.
'Key upside risks include lower credit costs, higher net interest margin, and non-interest income bond gains.
'Key risks include higher-than-expected cost of funds, liquidity outflow, and worse-than-expected asset quality,' it said.
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