Wednesday, 27 January 2010

Banking sector sees 19pc earnings growth this year

Banking sector sees 19pc earnings growth this year
Published: 2010/01/09

The banking sector expects an earnings growth of 19 per cent this year, premised on lower provisions supported by overall improved operating income.

HwangDBS Vickers Research, in its focus on the banking sector, said corporates have switched to the bond market for funding, adding that this served as an impetus for non-interest income expansion.

"We forecast a 10 per cent growth in non-interest income in 2010 and consumer loans will drive loans growth this year as corporates turn to the bond market to raise funds," the report added.

HwangDBS Vickers Research also expects SME loans utilisation to recover this year.

"Judging from loan applications and approvals by banks, we gather that the pipeline will be healthy," it said, projecting loans growth in 2010 between 8 and 9 per cent.

The research house said the top pick for Malaysian banks was CIMB because of its key proxy to Malaysian capital markets and regional expansion.

"We also like Hong Leong Bank for its reach in China which could spice up earnings growth as well as its regional aspirations.

"Hong Leong Bank is currently in talks to acquire EON Capital which is currently tagged for a merger and acquisition activity", the report said.

HwangDBS Vickers Research added there could be further room for earnings upgrade for selected banks such as Hong Leong Bank and RHB Capital when overnight policy rates move up.

For Maybank, there could be an upside on stronger Bank Internasional Indonesia earnings while Public Bank stood out as an excellent proxy of a quality bank.

"Public Bank loans growth still outpaces industry average while asset quality is still the best among peers," it said.

However, HwangDBS Vickers Research pointed out there were key risks to the sector's earnings.

"Key risk to earnings would be slower-than-expected drop in GDP growth which could potentially lead to slower recovery in overall earnings," it added.

As for Dubai's debt woes, it said not all Malaysian banks were exposed to the Middle East, nevertheless, a check with banks revealed that total exposure was less than RM200 million per bank.

HwangDBS Vickers Research said there was significant pick up in interest for banking stocks in 2009, which on the average, outperformed the FTSE Bursa Malaysia Kuala Lumpur Composite Index by 83 per cent. - Bernama

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