07/06/2024 12:02 PM

KUALA LUMPUR, June 7 (Bernama) -- The banking sector's first-quarter 2024 (1Q24) performance indicates a robust outlook for topline and balance sheet growth, confirming that initial concerns about this year's performance were exaggerated.

MIDF Research noted that the net interest margin (NIM) improved in 1Q, while non-interest income (NOII) presented a mixed picture, with stronger fee contributions but varied non-fee performance.

It also highlighted that provisions were more normalised, with some excellent performances. However, steep wage inflation plagued industry operating expenses and is likely to persist.

"Loan growth was solid, despite initial expectations of a weak first half (1H), and liquidity was less of an issue, though some banks with weaker deposit franchises fared poorly," it said in a note.

Looking ahead, the cost of funds is expected to continue improving, while loan yield compression is not anticipated to be severe for now.

"Large-scale infrastructure projects are expected to drive business loans in 2H, while the retail pipeline remains resilient.

"The NOII outlook is attractive, with better investor demand, strong loan growth, and large projects acting as retail and wholesale drivers," it added.

Meanwhile, the current account savings account and deposit outlook will vary between banks, but initiatives by the government and Bank Negara Malaysia are bolstering local liquidity.

"As a fallback, most banks remain solid dividend picks. However, several players are undervalued due to negative sentiment or initial expectations of weaker sector performance in 2024," it noted.

MIDF Research's top picks, Public Bank and Hong Leong Bank, have a ‘buy’ call with target prices of RM4.78 and RM21.38 respectively.

It projected that Public Bank's dividend payouts will gradually improve, with significant writebacks expected in the financial year 2024.

Hong Leong Bank’s net writebacks are anticipated next quarter, marking four consecutive quarters of writebacks.

CIMB, Bank Islam, and AmBank were also recommended as good picks by MIDF Research.




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