Malaysia’s banking sector is projected to register a better net profit growth this year amid a challenging business environment. CIMB Research said most banks expect relatively stable conditions in 2017 compared with a year earlier, despite an anticipation for pressure on asset quality to persist. However, the industry’s gross impaired loans ratio is expected to increase to 2% at end-December 2017, compared with 1.61% at end-December 2016. “We project a core net profit growth of 13.3% for banks in 2017, compared to a decline of 3.1% in 2016.“ The 2017 net profit growth would be underpinned by the normalisation in loan loss provisioning with an expected increase of only 0.8% this year compared to the 65.9% year-on-year (y-o-y) jump in 2016.

As for the banking sector’s performance in the fourth quarter of last year (Q4’16), CIMB Research noted that the industry performed commendably, albeit with higher credit costs. The research house highlighted that the banking sector’s Q4’16 core net profit was largely in line with its expectations and none of the banks have underperformed the market consensus in the quarter. “We are encouraged that despite the various macro headwinds, the banks’ gross impaired loan ratio only inched up by 1 basis point in 2016 to 1.61% at the end of December 2016.

“Meanwhile, loan growth rebounded from 4.2% at end-September 2016 to 5.3% at end-December 2016,” said CIMB Research, while adding that most of the banking industry players envisage a loans growth of approximately 5% for 2017. Moving forward, the research house reiterated its “overweight” call on the banking sector, primarily due to the expected recovery in net profit growth in FY17, undemanding valuations and an attractive dividend yield of 4.3% this year.

Source: The Star


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