Analysts bullish on Malaysian banking sector

Analysts bullish on banking sector
By Goh Thean Eu
Published: 2009/11/06

Analysts believe the war to attract more customers to take up loans by lowering interest rates has come to an end, if not near to an end, as lenders are beginning to raise interest rates.


ANALYSTS and fund managers are generally bullish on the banking sector next year, as economic recovery, higher interest rates and lower non-performing loans (NPL) are expected to lift banks earnings.

"This year, people were worried about how the economy would shape up, and on the banking sector, people were concerned about banks' NPL. A lot of these concerns were addressed and we are now more optimistic about next year.

"We believe asset quality would not deteriorate significantly next year and we are also expecting the central bank to increase the OPR some time next year, which would offer a good earning driver and higher margin for the banks and we believe earnings and margins to be better next year," said a TA Securities analyst.

For more than a year, banks were in a fierce competition to attract more customers to take up loans by lowering interest rates. Analysts believe the war has come to an end, if not near to an end, as lenders are beginning to raise interest rates.



"Moving forward, the competition landscape would not be as bad as we expected earlier, thanks to the revision of interest rates. It will certainly help increase the net interest margins of banks.

"As long as the economic recovery story remains intact, we expect banks provision will eventually come down and we expect most local banks to post a double-digit growth on revenue and earnings next year," said an analyst from a local research house.

Aberdeen Asset Management managing director Gerald Ambrose thinks likewise.

"Companies must meet a set of criteria before we invest in them. From our company visits so far, I must say, a lot of companies that met our criteria are banks," he said.

He said companies that meet the criteria are companies that are well-managed, has a long-term business plan, good corporate governance, transparent and willing to return excess cash to minority shareholders as dividend, among others.

Although the Kuala Lumpur Financial Index rose by more than 55 per cent this year alone, compared with the 42 per cent year-to-date increase of the benchmark FTSE Bursa Malaysia KLCI, analysts still believe that it's not too late to invest in banks.

"We are maintaining our overweight call on the sector on the grounds that NPLs are likely to be benign while the downtrend in provisions and strong capitalisation positions will provide future earnings and capital management upside surprises, which may not have been fully reflected in banks' valuation," said OSK Research Sdn Bhd analyst Keith Wee in a report.

OSK placed a "buy" call on CIMB and EON Capital, while TA Securities has a "buy" on Public Bank and Hong Leong Bank.