KUALA LUMPUR, March 25 — RAM Ratings Services Bhd has maintained a stable outlook for the local banking sector this year, reflecting the industry’s sturdy fundamentals. RAM’s co-head of Financial Institution Ratings, Wong Yin Ching said while…
PETALING JAYA: Malaysian banks’ asset risks will rise in 2019, as business conditions deteriorate for export-oriented sectors, said Moody’s vice-president and senior analyst Simon Chen.
“Profitability will also fall, as revenue growth slows and credit costs rise. Nevertheless, the banks’ capital buffers will further improve, due to slower asset growth; thereby helping the banks withstand the higher asset risks,” he said in a statement today.
The expected weak export-oriented sectors, particularly electronics, construction and real estate, is attributable to a slowdown in global trade and weaker economic growth.
However, Moody’s said this will not result in a sharp increase in impaired loans, with robust domestic consumption and stable employment conditions supporting asset quality.
Systemwide loan growth grew to 5.6% in 2018 from 4.1% in 2017, because of a gradual recovery in loan demand among corporates and households, partially as a consequence of the removal of a goods and services tax.
For 2019, the loan growth rate is expected to fall back to about 4-5% in 2019, as slower economic growth and uncertainty around the new government’s longer-term policy stance suppress loan demand among businesses and households.
Most Malaysian banks rated by Moody’s reported improvements in asset quality and capitalisation in 2018 but profitability was mixed.
Although profitability will weaken this year, the rating agency said capital generation will continue to outpace capital consumption due to weaker loan growth, leading to further rises in capital ratios. At the same time, deposit growth will continue to outpace loan growth as banks prepare for net stable funding ratio implementation.
The impaired loan ratios of most Moody’s rated Malaysian banks fell at the end of 2018 on the back of the slower formation of new impaired loans at home and overseas, loan repayments and write-offs.
PETALING JAYA: The banking sector has always been a strong indicator of how the economy will move forward. With three banking giants recording their highest ever earnings last year, can we then expect a much stronger economy ahead?
Last week, Malayan Banking Bhd (Maybank), CIMB Group Holdings Bhd and RHB Bank Bhd announced record net profits of RM8.11 billion, RM3.72 billion and RM2.31 billion for the financial year ended Dec 31, 2018, respectively, boosted by, among others, loan growth, higher net fund-based income and lower provisions.
Despite their record performances, the banks maintained a conservative stance in their outlook for 2019.
Economists are uncertain if the stellar financial performances by banks will translate into strong economic expansion for Malaysia as looming external headwinds cannot be ignored.
An economist who declined to be named opined that the performance by the banks in 2018 was based on the scenario that year, so 2019 may not turn out to be the same due to many uncertainties.
“Economic growth will still be expanding, whether the momentum is sustained or not. At the moment, it’s not easy to say because we’re still waiting for the outcome of the US-China trade negotiation. That will determine a lot of things, whether the stock market and the currency market will rally or not; so we can’t see the visibility yet until the trade decision is out. The macro picture will translate into the micro picture, that’s how it goes.”
The economist said businesses are cautious now. Moreover, as it is the first year of the sales and service tax implementation, the cautiousness in the market is there.
The economist forecast gross domestic product (GDP) to grow at 4.9% this year, compared with the consensus 4.7%, driven by private consumption and the rebound in mining.
“We think the services sector is still going to be the driver, apart from manufacturing. We’re banking on manufacturing to remain steady in 2019 based on the positive expectation that the trade war will be over so you’ll see services and manufacturing continue to be the driver in 2019. We don’t foresee services to be going down anytime soon, at least on a base case scenario they will be performing in line with their long term historical average.”
Meanwhile, BIMB Securities economist Imran Nurginias Ibrahim agreed that the record performances by the banks signal that the economy is on a strong footing.
“It is considered positive for the economy. With banks showing profits, its shows that there is loan growth for the sector. For this year, despite expectation of gross domestic product to be slower compared to 2018, loan growth for 2019 will still be sustainable. That will help the economy as retail loan growth will be positive and will stimulate economic activities further,” he told SunBiz.
Loan growth moderated to 5.2% in 2018 and is expected to ease further to 5.0% in 2019, on the back of a slower global and domestic growth trend. He said the GDP growth of 4.7% last year was quite resilient and the activities seen in the first two months this year would indicate that GDP growth would remain healthy.
“From the supply side of the economy, the services sector is one of the major contributors to GDP growth. If the banking sector continues to show growth and profit, that will also contribute towards the GDP growth from the services sector side,” Imran added.
He expects GDP growth for 2019 to come in at 4.8%, on the back of supportive private consumption and investment activity in the demand side, as well as services and manufacturing in the supply side.
Imran believes Bank Negara Malaysia, to ensure capital market stability and ample liquidity and to remain supportive of growth, will hold the overnight policy rate steady at 3.25% this year with room to cut if the economic environment deteriorates.
Notwithstanding this, he cautioned on the external headwinds.
“So far it’s still early, we don’t know what’s going to happen to the US-China trade issue and how the Fed is moving forward. What we’re seeing now is that global growth is a bit slow, there is also the US-China trade war and other uncertainties so we have to look at the next few months to see how the activities in the economy are growing,” explained Imran.
PETALING JAYA: Banking sector loans kicked off 2019 with a 5.5% year-on-year growth in January, underpinned by sectors like manufacturing, retail, business services, construction and households (residential properties, personal use, credit cards).
With less than a month to go before the first quarter (Q1) comes to an end, AffinHwang Capital expects loan growth to be slow in the first three months of 2019, in tandem with slower business activities due to the seasonal effect of the Chinese New Year. It maintained its neutral sector stance, with Maybank and Aeon Credit Service (M) Bhd as its top picks.
“For 2019, we keep our loan growth target of 5% unchanged, noting that loan disbursements may gradually taper down due to a more cautious business and consumer outlook in 2019, largely dampened by external factors. The downside risks are largely supported by our strong economic fundamentals – resilient consumer spending, business growth and low unemployment rate, of which are holding up. Longer term, with new government policies after the Budget 2019 announcement, we expect consumer sentiment to gradually improve and drive consumption spending,” said AffinHwang Capital.
Macquarie Research is overweight on banks on resilient fundamentals and capital optimisation. It prefers corporate banks (Maybank, RHB, AMMB Holdings) over retail-centric Public Bank Bhd and Hong Leong Bank Bhd.
The banking sector accounts for about 32% of weightage in Bursa Malaysia’s benchmark FBM KLCI, hence the sector’s prospects would provide an indication of the performance for the index.
According to Bank Negara Malaysia, the local financial sector is envisioned to grow beyond its role as an enabler of growth to be a key driver and catalyst of economic growth, with growth in the financial system firmly anchored to growth in the real sector.
KUALA LUMPUR: The sterling performance of Malaysia’s commercial banks and financial institutions in 2018, with some hitting record profits, is a shot in the arm to boost confidence in corporate earnings growth as the sector plays an important role in the financial system and the economy. “The results are a relief for investors and at […]
KUALA LUMPUR: CIMB Group Holdings Bhd, which saw a record net profit of RM5.58 billion for the financial year ending Dec 31, 2018 (FY18), expects a stronger performance in FY19 but remains cautious in view of sustained external headwinds. It is closely watching elections and political developments in Indonesia and Thailand.
Group CEO Tengku Datuk Seri Zafrul Aziz hopes for a better FY19, based on its forecast loan growth and given that markets are expected to be better. Despite some uncertainties in the region, Asean’s growth rate is expected to remain robust.
“Malaysia looks strong … costs continue to be in control and provisions, assets qualities numbers are quite good. We don’t see any problems. (For) Malaysia we’re positive, but we’ve got Thailand and Indonesia with elections. We don’t know what happens after their elections. Indonesia can slow down, Thailand also … so my concern is now more of outside Malaysia. We have 60% (of business from) Malaysia, 40% is still outside Malaysia,” he said after announcing the group’s FY18 results here today.
Zafrul said CIMB is aiming for loan growth of 6-7% for FY19, above the industry’s 5%, taking into account the growth in its other markets. It posted loan growth of 7% in FY18, supported by 10.5% growth in Malaysia.
The group’s gross impairment ratio stood at 2.9% as at end-December 2018, with an allowance coverage of 106.3%
Zafrul said net interest margin (NIM) will be relatively flat this year. The group’s NIM was lower at 2.5% in FY18, attributed to the contraction at CIMB Niaga. Return on equity (ROE) is also expected to be flat as the group is planning to make investments into technology this year.
CIMB’s net profit for the fourth quarter ended Dec 31, 2018 rose 5.4% to RM1.12 billion from RM1.06 billion a year ago, largely attributed to commercial banking and group funding, while revenue dipped 9.8% to RM4.07 billion compared with RM4.52 billion in the previous year’s corresponding quarter.
Its FY18 net profit was 24.8% higher at RM5.58 billion from RM4.48 billion in FY17, underpinned by strong performances from consumer and commercial banking, as well as lower provisions and costs. However, revenue was 1.4% lower at RM17.38 billion compared with RM17.63 billion in FY17.
The group declared a second interim net dividend of 12 sen per share, with the total dividend amounting to 25 sen. This translates to a dividend payout ratio of 50.8% of FY18 business-as-usual profits.
CIMB achieved its T18 financial targets scorecard, with its cost-to-income ratio coming in at 49.8%, common equity tier 1 at 12.6% and ROE at 11.4% in 2018. Income contribution from consumer and commercial now stands at 61% and it has a presence in the 10 Asean countries. Initiatives throughout T18 resulted in savings and cost avoidance of over RM2 billion from 2015 to 2018.
The group is expected to unveil its Forward23 five-year strategic plan in the next two weeks.
KUALA LUMPUR, Feb 28 — BIMB Holdings Bhd’s (BHB) net profit for the financial year ended Dec 31, 2018 (FY18) jumped 10 per cent to RM682.06 million from RM619.84 million the preceding year. Revenue improved to RM4.20 billion from RM3.72 billion,…
KUALA LUMPUR, Feb 28 — Banks in Malaysia have maintained sufficient liquidity to support intermediation and meet exigent needs, Bank Negara Malaysia (BNM) said in its “Monthly Highlights-January 2019” report released today. BNM said the…
KUALA LUMPUR: RHB Bank Bhd, which posted record net profit of RM2.31 billion for the financial year ended Dec 31, 2018 (FY18), is cautiously optimistic that the bank will surpass last year’s earnings in FY19.
“We are working very hard to surpass what we did last year and we are cautiously optimistic that we can improve our profit this year,” its group managing director Datuk Khairussaleh Ramli told reporters at a press conference here today.
On loan growth, Khairussaleh said the bank is targeting a 5% increase this year, to be supported by resilient growth in mortgages as well as small and medium enterprises.
“We think the industry will grow around 5%-5.5% this year. We are also trying to be conservative and target 5% growth given the current challenging global economic environment,” he said.
Nevertheless, he said due to heightened deposit competition, especially in the retail segment, the bank could see net interest margin (NIM) compression of up to three basis points (bps), down to 2.17% in FY19, compared with 2.20% in the fourth quarter of 2018.
The group registered a higher NIM of 2.24% for FY18, compared to 2.18% in FY17 supported by growth in loans and continued prudence in the management of funding cost.
Moving forward, Khairussaleh said with the RM200 million investment allocation in digitalisation for the next five years, the bank will continue to invest in technology infrastructure and digital capabilities to improve operational efficiency.
Commenting on its performance in FY18, Khairussaleh said the results demonstrate the group’s strengths and resilience operating in a challenging environment and its good progress in FIT22 implementation.
The bank’s net profit soared 22.9% to RM565.43 million for the fourth quarter ended Dec 31, 2018 fromt RM460.08 million in the previous corresponding period, thanks to higher net fund-based income and lower allowances for credit losses on loans and other assets.
Its revenue increased 7.7% to RM3.31 billion from RM3.07 billion.
The bank declared a final dividend of 13 sen per share for the quarter under review.
For the whole of 2018, RHB Bank posted record net profit of RM2.31 billion, up 18.2% from RM1.95 billion on the back of a 6.9% expansion in revenue to RM12.69 billion from RM11.87 billion. This was mainly contributed by an 8.5% increase in net fund-based income to RM4.94 billion, with a higher net interest margin of 2.24%, supported by growth in loans and continued prudence in the management of funding cost.
The group’s gross loans and financing grew 5.5% to RM168.9 billion while gross impaired loans ratio improved to 2.06% from 2.23% a year ago with gross impaired loans at RM3.48 billion as at end-December 2018.
Allowances for credit losses on loans were 22.8% lower at RM322.4 million, primarily due to certain recoveries recorded in the current period, coupled with substantial impairment provided for oil and gas-related companies in the corresponding period.
Allowances for credit losses on other financial assets were also significantly lower by RM241.8 million, mainly due to improved ratings of investment portfolio and the absence of impairment provided on an oil and gas-related bond in Singapore last year.
The bank’s common equity tier-1 and total capital ratio after the FY18 final dividend are among the highest in the industry, at 15.49% and 18.78% respectively.