AMBANK Research today maintained a neutral call on the banking sector as uncertainties on the asset quality and credit cost post-moratorium continue to cloud the sector.
According to Ambank Research banks’ core calendarised earnings growth for six months in 2020 slipped 13.4% year-on-year (y-o-y) due to lower interest income from consecutive OPR cuts and higher provision.
“This is despite a higher investment and trading income lifting banks’ non-interest income (NOII) in the same period.
“Six banks, namely Maybank, Public Bank, RHB Bank, Hong Leong Bank, Alliance Bank and BIMB posted earnings within our expectation while CIMB came in below our expectation. AMMB, on the other hand, posted core earnings that are above consensus projection, ” stated Ambank Research.
Although the banking sector’s y-o-y loan growth was low at only 2.9% as a whole, domestic loans of Maybank and CIMB’s grew higher than the industry’s credit growth while Public Bank’s domestic loan continued to grow slower than the industry’s, it noted.
Ambank Research expected the industry’s loan growth to be 3.0%–4.0% in 2020, on the back of potentially further disbursements for special relief facilities for SMEs and a slightly better household loan growth in the second half of the year (2H20) as compared with the first half following the easing of MCO restrictions.
Modification loss dropped significantly lower than market expectations in the second quarter of 2020 (2Q20), the research house highlighted, adding that the total net medication loss for banks under its coverage came in at RM1.78 bil compared with RM4.4bil reported by the media.
Maybank and Public Bank, with relatively larger hire-purchase (HP) portfolio, reported net modification loss of RM314 mil and RM498 mil respectively.
Ambank Research, therefore has now revised banking sector’s calendarised core earnings growth for the year to -21.6% from -17.9% largely after adjusting its assumptions for higher credit cost.
For 2021, a recovery in earnings of +11.6% is projected against +7.7% earlier. Ambank’s top picks for the sector are Hong Leong Bank, RHB Bank and Maybank.
As at 3.48pm Hong Leong Bank share price stood at RM14.80 with market capitalisation of 32.04 bil while RHB Bank was RM4.67 with 18.73 bil market capitalisation and Maybank shares priced at RM7.25 with 81.5 bil. Sept 8, 2020