KUALA LUMPUR: The banking sector remains well-positioned for a re-rating, supported by improving credit costs, stronger net interest margin (NIM), higher non-interest income from bond gains, and potential loan growth acceleration.
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CIMB Securities Sdn Bhd has maintained an “overweight” stance on the sector, citing these positive factors.
However, it highlighted key risks, including a higher-than-expected cost of funds, liquidity outflows, and weaker-than-anticipated asset quality.
The firm’s top picks remain Hong Leong Bank Bhd (HLBB) and AMMB Holdings Bhd (AmBank Group).
Additionally, it has upgraded RHB Bank Bhd to replace Malayan Banking Bhd (Maybank) in its recommendations.
“We like HLBB for its solid book value and potential to raise dividend, while concerns over its China operations are likely to dissipate over time.
“AmBank Group’s valuation remains cheap, with earnings strongly geared towards lower credit costs, better NIM, a pickup in non-interest income and loan growth.
“RHB’s net earnings are also highly leveraged to better cost of funds, and benign credit costs. RHB’s net dividend yield is the highest among the banks at 6.2 per cent for the financial year 2024 (FY24), 6.4 per cent for FY25, and 6.5 per cent for FY26,” it said in a note.
According to CIMB Securities, loan applications recorded flattish growth of 1.5 per cent year-on-year (YoY) in January 2025, largely due to the Chinese New Year holiday season effect, which fell on Jan 29 this year compared with Feb 10 last year.
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Approved loans growth fell 14.0 per cent in January 2025, likely due to the early Chinese New Year effect.
The firm noted that loans started 2025 with a healthy 5.7 per cent growth YoY in January 2025, driven mainly by the auto, residential, and non-residential mortgage segments.
Gross impaired loans inched up by 1.4 per cent month-on-month, or RM469.3 million, in January 2025.
The uptick was from the residential mortgages, auto, and working capital segments.
CIMB Securities noted that the results of four banks under its coverage, namely AmBank Group, HLBB, Public Bank Bhd (PBB), and RHB came in above the firm’s expectations.
It said the positive variances were driven mainly by stronger-than-expected non-interest income, and benign loan loss provision.
“Alliance Bank Malaysia Bhd’s net earnings were in line with our expectations, while CIMB Group Holdings Bhd’s net earnings were in line with the consensus forecast.
“Affin Bank Bhd’s and Maybank’s results fell short of our expectations, owing to softer-than-expected net interest income, but were in line with market expectations.
“Despite this, Affin registered solid earnings growth of 27 per cent YoY for FY24,” it said.
-NewStraitsTime