KUALA LUMPUR, June 9 (Bernama) -- Hong Leong Investment Bank Bhd (HLIB) forecasts the banking sector’s earnings to grow at a two-year compound annual growth rate (CAGR) of 3.4 per cent over the financial year of 2024-2026.
In a research note today, the investment bank said that the recent first quarter of 2025 (1Q 2025) reporting season was broadly in line with its expectations, with Bank Islam Malaysia Bhd (BIMB), the only bank under its coverage to miss estimates, dragged down by higher credit costs.
In response to the BIMB exception, HLIB has maintained a “hold” stance on and cut BIMB’s target price (TP) to RM2.40 per share.
In 1Q 2025, banking sector earnings rose 4.1 per cent year-on-year (y-o-y), driven by lower loan impairment provisions, but fell 3.4 per cent quarter-on-quarter (q-o-q) on a sequential rise in credit charges, it said.
“Heading into the 2Q 2025, we expect the net interest margin in 2Q to hold up reasonably well sequentially.
“We see three key forces at play -- fresh liquidity from the recent statutory reserve requirement cut, easing deposit competition, and a sector-wide pivot to more disciplined loan expansion and funding strategies,” it said.
In addition, HLIB said the proactive stance is already visible, with banks cutting promotional/campaign fixed deposit rates by five to 15 basis points in May, ahead of a potential overnight policy rate cut, though the full margin benefit may only materialise in the second half of 2025 (2H 2025).
“Beyond margins, the bedrock of asset quality is expected to remain solid, supported by resilient domestic economic conditions and minimal United States trade exposure (lower than 1-4 per cent of total loans),” it said.
While acknowledging risks from the secondary impacts of trade uncertainty, HLIB believes any potential weakness will be well-contained.
“The sector is significantly more resilient than in previous downturns, primarily due to the formidable provision buffers accumulated over the past five years.
“This ‘fortress of provisions’ provides a robust defence, capable of absorbing any stress and cushioning the gross impaired loan ratio, which currently stands near historical lows,” it said.
Therefore, HLIB maintained its “overweight” stance on the sector and viewed the KLFIN (Bursa Malaysia Finance) Index’s seven per cent year-to-date decline as a tactical opportunity to accumulate ahead of a potential recovery in 2H 2025.
“To position for this upswing, our preferred picks are CIMB Bank Bhd (TP: RM8.80), AMMB Holdings Bhd (AmBank) (TP: RM6.20), RHB Bank Bhd (TP: RM7.70), with CIMB and AMMB as our primary high-beta proxies.
“We also have ‘buy’ calls on Affin Bank Bhd (TP: RM3.00), Alliance Bank Malaysia Bhd (TP: RM5.00), and Public Bank Bhd (TP: RM5.10),” it said, adding that key risk to “overweight” call includes sharper-than-expected economic slowdown, prolonged deposit pricing pressure, and escalation in global trade tensions.
Meanwhile, Maybank Investment Bank Bhd (Maybank IB) said it downgraded banks to a “neutral” call given prevailing uncertainties on the external front and the prospect of more subdued earnings growth.
“1Q 2025 results season was lacklustre for banks, with the results of several banks coming in below expectations.
“In light of slower gross domestic product growth ahead, we have trimmed our banks’ earnings by five per cent/four per cent for 2025/2026, and now forecast 2025/2026 net profit growth of 1.1 per cent/5.0 per cent, respectively,” it said.
Maybank IB's top picks are Public Bank and AMMB, based on strong asset quality and proactive funding cost momentum, respectively, as well as higher dividends.
-- BERNAMA
