HAVING rallied 37% since the start of November, the banking sector which has been a market laggard for much of 2020 suddenly come alive with investors seem to disregard the near-term uncertainties and banking on the expectation of a vaccine-induced recovery.
Nevertheless, RHB Research viewed such move as sustainable despite the current strong share price performance.
“With recovery on its way and the arrival of effective vaccines in just a matter of time, sector re-rating (ahead of actual return on equity recovery) will gain more traction in 2021 as investors rotate to cyclical sectors,” projected analysts Liew Wai Hoong and Fiona Leong in a sector update.
Moving forward, RHB Research expects sector PATAMI (profit after tax and minority interests) to recover 27% in 2021 although it is still presently at circa 12% below the pre-COVID-19 level after dipping 30% in 2020.
“The uplift in earnings is mainly on the year-on-year (yoy) lower credit cost as we expect most banks to bring forward much of their respective provisions to 2020,” opined Liew and Leong.
“Asset quality will again be the focal point after months of delay caused by various debt repayment relief programmes.”
Moreover, the research house also expects ESG (environment, social and governance)-focus investing to gain further traction and move closer to the centre stage of investment in 2021.
“While most banks demonstrate strong corporate governance practices, areas such as responsible lending and better corporate social responsibility will very much be under the spotlight,” reckoned RHB Research.
“We expect more banks to announce their respective ESG frameworks and strategies in 2021.”
All-in, RHB Research maintained its “overweight” outlook on the banking sector by expecting banks to outperform the market in 2021 as the economy recovers and COVID-19 vaccines being made available beginning 2H 2021.
“Sporadic resurgence in cases and lockdowns are the downside risks but the eventual recovery is still very much the focus while ESG (environment, social and governance) issues will gain more traction and be one of the key focus areas by banks,” added the research house. – Dec 17, 2020
