AFTER enduring a rough patch for most at least three quarters of last year, everything seems to be positive on the banking sector front for now.
Boosted by the recovery theme play, many bank stocks have recovered from their 52-week lows with likelihood of recouping their pre-pandemic levels once more.
Moving forward, TA Securities Research expects momentum in the domestic economic activities to gradually improve, thus leading to stronger loan growth projections in 2021.
This comes on the back of concerted stimulus measures by governments globally to protect businesses and individuals from economic disruptions caused by the COVID-19 as well as potential re-opening of borders following the roll-out of immunisation programme globally.
Despite uncertainties in terms of the credit outlook especially post the loan moratorium, the research house believes that the central bank has been proactively monitoring developments closely by ensuring ample liquidity in the system by relaxing capital and liquidity buffers to support lending activities.
“(Moreover), financial institutions (are) intensifying efforts to identify customers and extending repayment assistance to those in need while a conducive interest rate environment should help keep systemic asset quality risk in check,” opined analyst Li Hsia Wong who retained an “overweight” outlook on the sector.
Meanwhile, CGS-CIMB Research expect banks’ net profit in 2021F to be catalysed by a recovery in net interest income growth and a decline in loan loss provisioning (LLP) which are the potential re-rating catalysts for the sector.
“Despite the cut in loan growth, we expect banks’ net interest income to increase in 2021F due to wider net interest margin,” projected analyst Winson Ng who is also “overweight” on the sector.
The research house’s top picks are Public Bank Bhd, Hong Leong Bank Bhd and RHB Bank Bhd.
On the much awaited interest rate front, HSBC Global Research amended its earlier call for Bank Negara Malaysia (BNM) to deliver one last 25 basis points (bps) cut to the overnight policy rate (OPR) in its meeting tomorrow (March 4).
“The recent fall in COVID-19 cases, the gradual easing of restrictions, the earlier-than-expected start to the vaccine drive, upbeat data, and the government’s pledge for “targeted support” all suggest a reduced likelihood for a rate cut,” justified chief economist Joseph Incalcaterra.
“Accordingly, our base case is now for the OPR to remain unchanged at 1.75% this year. “
Nevertheless, HSBC believes that the March 4 decision will be a close call with a non-negligible chance of easing given the sharp hit to 2021 growth owing to the lockdown measures.
“Moreover, should conditions unexpectedly and meaningfully deteriorate, BNM remains one of the few central banks in the region that could easily provide more monetary policy support,” added HSBC – March 3, 2021
