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Focus Malaysia
6 hours ago
- Business
- Focus Malaysia
Banking sector resilient with provision buffers ahead of global headwinds
THE quarter one 2025 (1Q25) reporting season came in broadly within expectations. Seven of the eight banks under Hong Leong Investment Bank's coverage (Affin, Alliance, AMMB, CIMB, Maybank, Public Bank, and RHB) delivered results that tracked closely with their forecasts. The lone exception was BIMB, which missed due to higher-than-anticipated credit costs. 'Stripping out non-recurring items from 4Q24, core earnings dipped 3.4% quarter-on-quarter (qoq),' said Hong Leong Investment Bank (HLIB). This came despite a 3.6% rise in pre-impairment operating profit (PIOP), which was supported by positive JAWs (+0.3ppt) and robust non-interest income growth (NOII; +7%). The drag came from higher loan loss provisions (+11.6%) and a weaker contribution from associates (-27.3%). Net Interest Margins (NIM)s were broadly stable, with Affin standing out positively (+7 basis points). Sector core earnings rose 4.1%, underpinned by lower loan loss provisions (-22.9%) and stronger associate contributions (+31.2%). PIOP grew modestly by 1.1%, with net interest income (NII) up +3.4%, partially offset by a dip in NOII (-1.3%). Cost control remained commendable, with operating expenses rising 2.9%. Top performers were Affin (+12.6%) and Alliance (+11.1%), with both delivering robust NII growth, alongside effective cost and provision management, respectively. Both loan and deposit growth moderated, reflecting festive seasonality and FX volatility. Banks continued to pull back from expensive deposit campaigns to protect NIMs. Meanwhile, Alliance was the only bank to post double-digit loan and deposit growth. Asset quality remained firm, with the sector gross impaired loan (GIL) ratio ticking up 1 basis point QoQ to 1.38%. 'Heading into 2Q25, we expect NIMs in 2Q25 to hold up reasonably well sequentially,' said HLIB. HLIB sees three key forces at play: fresh liquidity from the recent SRR cut, easing deposit competition, and a sector-wide pivot to more disciplined loan expansion and funding strategies. This proactive stance is already visible, with banks cutting promotional/campaign FD rates by 5-15 basis points in May, ahead of a potential overnight policy rate cut, though the full margin benefit may only materialize in the second half of 2025. Beyond margins, the bedrock of asset quality is expected to remain solid, supported by resilient domestic economic conditions and minimal US trade exposure. 'While acknowledging risks from the secondary impacts of trade uncertainty, we believe any potential weakness will be well-contained,' said HLIB. The sector is significantly more resilient than in previous downturns, primarily due to the formidable provision buffers accumulated over the past five years. This 'fortress of provisions' provides a robust defence, capable of absorbing any stress and cushioning the GIL ratio, which currently stands near historical lows. 'We reiterate our overweight stance on the Malaysian banking sector, viewing the KLFIN Index's 7% year to date decline as a strategic opportunity to build positions ahead of an anticipated market recovery in the latter half of 2025,' said HLIB. —June 9, 2025 Main image: European Commission
New Straits Times
7 hours ago
- Business
- New Straits Times
Banking sector poised for stronger earnings: HLIB Research
KUALA LUMPUR: The banking sector's earnings momentum is projected to accelerate in the second half of 2025 (2H), following a modest performance in the first quarter. Hong Leong Investment Bank Bhd (HLIB Research) said the first quarter of 2025 earnings season was broadly in line with expectations, with Bank Islam Malaysia Bhd being the only bank under its coverage to miss estimates due to higher credit costs. The remaining seven banks it covers, namely Affin Bank Bhd, Alliance Bank Malaysia Bhd, AMMB Holdings Bhd (AmBank), CIMB Group Holdings Bhd, Malayan Banking Bhd (Maybank), Public Bank Bhd and RHB Bank Bhd, delivered results that tracked closely with forecasts. The firm said the sector earnings rose 4.1 per cent year-on-year (YoY), driven by lower loan impairment provisions, but fell 3.4 per cent quarter-on-quarter on a sequential rise in credit charges. "Looking ahead, we forecast sector earnings for financial years 2024 to 2026 (FY24-25) to grow at a two-year compound annual growth rate of 3.4 per cent," it said in a note. HLIB Research anticipates net interest margins of the bank in the second quarter of this year to hold up reasonably well sequentially. It pointed out three key forces at play, including fresh liquidity from the recent statutory reserve requirement cut, easing deposit competition and a sector-wide pivot to more disciplined loan expansion and funding strategies. "This proactive stance is already visible, with banks cutting promotional/campaign fixed deposit rates by five to 15 basis points in May, ahead of a potential Overnight Policy Rate cut, though the full margin benefit may only materialise in 2H 2025. "Beyond margins, the bedrock of asset quality is expected to remain solid, supported by resilient domestic economic conditions and minimal US trade exposure," the firm added. Recognising risks from the secondary impacts of trade uncertainty, HLIB Research said any potential weakness will be well-contained. It noted that the sector is significantly more resilient than in previous downturns, primarily due to the formidable provision buffers accumulated over the past five years. It said the "fortress of provisions" provides a robust defence, capable of absorbing any stress and cushioning the gross impaired loan ratio, which currently stands near historical lows. HLIB Research maintained its "Overweight" stance on the banking sector and views the KLFIN Index's year-to-date 7.0 per cent decline as a tactical opportunity to accumulate ahead of a potential recovery in the latter part of the year. The firm's top picks include CIMB with a target price of RM8.80 a share, as well as AmBank (TP: RM6.20) and RHB (TP: RM7.70).
