KUCHING: The banking sector is estimated to post stronger earnings growth this year, amounting to 19 per cent on the back of lower provisions led by overall improved operating income.In its research note, investment and stockbroking consultancy HwangDBS Vickers Research Sdn Bhd, pointed out that corporates have switched to the bond market for funding, adding that this served as a trigger for non-interest income expansion.
The research house forecast a 10 per cent growth in non-interest income this year, with loan growth estimates to be in between eight to nine per cent, driven by consumer loans. This was observed from loan applications and approvals by banks gathered to date.
A number of banks have been included as favourites to become key contributors to the growth. HwangDBS research picked CIMB Bank Bhd given its key proxy to Malaysian capital markets and regional expansion.
It also mentioned Hong Leong Bank Bhd (Hong Leong) as a noteworthy candidate due to its presence in China as well as its potential merger with EON Capital Bhd (EON Capital). It went on further to state that there could be further room for earnings upgrade for selected banks such as Hong Leong and RHB Capital when overnight policy rates move up.
Its view on local bankgroup Malayan Banking Bhd (Maybank), HwangDBS Research said there could be an upside on stronger its Indonesian subsidiary Bank Internasional Indonesia’s earnings.
Meanwhile, Public Bank Bhd was seen as an excellent example of a quality bank, with higher-than-industrial-average loans growth and outstanding asset quality.
Nonetheless, the research house did not dismiss certain key risks to the sector’s earnings and explained that it was forecasted to post a slower-than-expected drop in gross domestic product (GDP) growth that might lead to a sluggish recovery.
As for the Dubai World debt crisis, it said although not all Malaysian banks were exposed to the financial setback that was derived from the Middle East, a further observation revealed that total exposure was less than RM200 million per bank.