Maybank Investment Bank (Maybank IB) raised its recommendation to ‘positive’ from ‘neutral’ for the Malaysian banking sector, driven by the prospect of economic recovery this year and better projections for banks.
Through its research note today, Maybank IB explained that the country's economy is ready to record a recovery, following the number of active cases Covid-19 began to decrease and the Movement Control Order (PKP) was relaxed again.
Thus, the investment bank expects Malaysia's Gross Domestic Product (GDP) growth to 5.1% this year.
In that situation, there are several positive elements for the banking sector, including faster loan growth and expansion of net interest margins without further interest rate reductions.
Maybank IB added that unrealized investment profit reserves can still provide a buffer to earnings as well as a strong capital position to enable lending for the recovery of dividend payment ratios.
“We project slower aggregate operating profit growth at 1.3% this year compared to 3.0% in 2020 taking into account low investment income, offset by faster loan growth, expansion of net interest margins and controlled overheads.
"The projection for the 2021 core net profit aggregate, however, is at 19% year-on-year compared to the 21% decline in 2020 following the gradual decline in credit costs," according to the investment bank as reported by Bernama.
In addition, Maybank IB expects the return on equity (ROE) for the bank in its coverage to record a higher average of 8.6% in 2021 compared to 7.6% in 2020 further improving to an average of 9.2% next year.
The investment bank also projected the banking system loan growth to increase to 3.8% in 2021 compared to 3.4% last year, driven by steady growth in household lending and increased corporate lending following economic activity.
Maybank IB is also confident that there will be no further interest rate reduction with continued economic growth,
He further explained that Malaysian banks are in a strong position in the face of the crisis due to Covid-19 which is with prudent capital position developed over the years and is now above 13% for all banks, while CIMB at 12.9%.
Thus, this allows banks to cope with current challenges well.
