KUALA LUMPUR: CGS-CIMB Research forecast Malaysian banks to post a total core net profit (CNP) between RM6.5 billion and RM6.6 billion in the third quarter (Q3) of 2023, representing growth of 1-4 per cent quarter-on-quarter (QoQ) and 7-9 per cent year-on-year (YoY).
"This is underpinned by our expectation of a resumption in net interest income (NIM) growth stabilising and YoY loan growth of around 4 per cent in Q3 2023.
"We also expect banks' Q3 2023 non-interest income (NNII) to be close to the second quarter (Q2) of 2023's level of RM5.43 billion but with lower YoY growth at mid-single-digit rates versus Q2 2023's 47.2 per cent.
"Meanwhile, we see room for banks to reduce their total loan loss provisioning (LLPs) in Q3 2023 from the level of RM1.34 billion in Q2 2023 as the banking industry's gross impaired loan ratio had stayed stable at 1.76 per cent as at end-Jun 23 and end-July 23, while several banks could record management overlay write-backs, in our view," the research firm said in a note.
Noting that domestic banks survived the NIM contraction in Q2 of 2023, CGS-CIMB Research said Q2 2023 was not all sunshine and rainbows for Malaysian banks despite the stellar YoY CNP growth of 21.6 per cent during the quarter.
This was due to the non-recurrence of Cukai Makmur (CM) taxation, a 47.2 per cent YoY surge in NII, and a 13.7 per cent YoY drop in LLP.
Banks suffered another round of contraction in NIM, with Q2 2023 NIM down three basis points QoQ and 19 basis points YoY after a 22 basis point QoQ contraction in Q2 of 2023.
"For the banks under our coverage, we project CNP growth of 14.8 per cent in 2023 and 8.3 per cent in 2024 on the back of increases of 2-4 per cent in NII and 7-14 per cent in NII.
"We also forecast a 2.8 per cent decline in LLP for 2023 but an 11.7 per cent jump in 2024. We see the non-recurrence of CM taxation as another earnings catalyst for banks in 2023," CGS-CIMB Research noted.
The research firm reaffirmed its Overweight rating on Malaysian banks, predicated on the potential partial write-back in management overlay, which stood at a whopping RM6 billion at end-Jun 23, and capital management by several banks that could lead to an increase in dividend payout ratios and an expansion in return on equity (ROE) over the longer term.
Potential downside risks are deterioration in asset quality and deterioration in loan growth.
"Our top pick for the sector is RHB Bank Bhd, premised on its attractive valuation and dividend yield of 6.5 per cent for 2023," it said.
