Earnings outlook for Malaysian banks intact – for now


PETALING JAYA: Following Bank Negara Malaysia’s (BNM) decision to maintain its Overnight Policy Rate (OPR) at 1.75%, earnings forecasts for domestic banks are intact for the time being, as there is still a possibility of an interest rate cut in the first half of the year.

In a note, CGS-CIMB Research said it is maintaining its net profit growth forecast of 19% for 2021, underpinned by a projected 30.2% drop in 2021 loan loss provisioning, and turnaround in net interest income growth from a decline of 5.4% in 2020 to an expansion of 4.7% in 2021.

It is maintaining its overweight call on banks, premised on its view that local banks’ earnings growth will rebound this year and be supported by the expectation that gross domestic product growth will also recover.

That said, the research house is expecting a possible OPR cut of 25 basis points (bps) in H1’21 should MCO 2.0 continue for a protracted period, which would lower its projected net profit growth for banks in 2021 to 17.2% from 19% currently.

“Our economist’s change in view to now expecting a 25bp OPR cut in 2021 (from no cut previously) is negative for banks. However, this is much narrower than the 125bp cut in 2020, signifying a better net interest margin outlook in 2021,” it said.

CGS-CIMB noted that the negative impact from an OPR cut would be the greatest on BIMB and Alliance Bank, at an estimated 7-8% of their FY21 net profits.

For BIMB, this is because it has the highest floating-rate loan ratio (over total loan) of 88.2% projected in FY21 against an average of 77.3% for banks under its coverage. Alliance Bank’s floating-rate loan ratio is also high at its forecast 82% in FY21.

“The impact of a 25bp OPR cut would be smallest at 1.2% for Public Bank’s FY21 net profit, due to its high non-CASA ratio of 74.6% in FY21 (vs sector average of 72.4%). Most of these deposits are fixed deposits which would be repriced downwards in the event of OPR cut,” it added.

CGS-CIMB’s top picks for the sector are Public Bank, Hong Leong Bank, RHB Bank and AMMB.





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