KUALA LUMPUR: Domestic banks’ net interest income (NII) for the fourth quarter (Q4) could be flattish, with the expansion in the loan base offset by net interest margin (NIM) pressure due to the seasonal competition for deposits and from the lagged impact of May’s overnight policy rate (OPR) increase.
RHB Research said while some banks offered
deposit rates of more than 4 per cent, this does not appear to have been a widespread practice, and the banks expect an easing in competitive pressure in the first quarter (Q1) of 2024.
“On non-II, fees could stay healthy on strong loan- and card-related fees, but
market-related (ie trading and investment)and foreign exchange (FX) income may be lumpy and harder to forecast.
“The 10-year Malaysian Government Securities (MGS) yield contracted by 24bps quarter-on-quarter (QoQ), which should be positive for trading activities, even though some banks may be inclined to rebuild their bond portfolios or hold on to the higher yields,” the bank-backed research firm said in a note today.
RHB Research also noted that the Q4 2023 banking sector’s profit before tax (PBT) could be muted QoQ due to NIM pressure, higher operation expenditure (opex) and credit cost, with markets-related non-II being a swing factor.
“CIMB Group Holdings Bhd’s results maybe slightly ahead of our estimates on higher- and lower-than-expected non-II and credit cost QoQ, but Affin Bank Bhd’s numbers may miss projections on NIM pressure.
“What is more pertinent is the outlook – positive guides on return on equities (ROEs) and capital management initiatives are likely to be well-rewarded by investors,” RHB Research noted.
Further, RHB Research sees the domestic banking sector is likely to report higher opex and loan impairments QoQ – a reflection of seasonality (opex) and base effect (credit cost). Larger banks such as CIMB and Malayan Banking Bhd reported lower credit costs in the third quarter (Q3) due to writebacks and model changes, which may not recur this quarter.
Also, there could be provision top-ups to lift coverage for CIMB and AMMB Holdings Bhd), RHB Research noted. “Generally, we do not expect adverse developments in asset quality, but we would be keen to hear more on the small and medium enterprises (SME) segment. “Hence, sector PBT could be muted QoQ but the profit after tax and minority interests (PATMI) trend could be boosted by AMMB, depending on the extent it utilises its tax credits,” RHB Research said.
Maintaining a Neutral call on the sector, and with several banks approaching the tail-end of their mid-term plans, RHB Research thinks investors would be keen to hear more about what would be next in the upcoming and future briefings.
“We see investors ending up with a spread of choices – banks that will be investing for growth, banks in a steady state, banks with room to further optimise their capital and balance sheets, and banks that could offer a combination of the above,” the research firm noted.
