Banks - Another tough year in 2015
Recommendation: Under Weight
After a tough year in 2014, the operating environment does not look any easier for Malaysian banks in 2015. Apart from sliding lending yields, banks will have to contend with (1) GST’s negative impact on business/consumer sentiments, (2) keen competition for deposits, (3) slowing residential mortgages, and (4) guidelines for Islamic deposits. All the above underpin our cautious stance on the earnings outlook for banks. We retain our Underweight on the sector, keeping Maybank as our top pick.
All the above underpin our cautious stance on the earnings outlook for banks. We retain our Underweight on the sector, keeping Maybank as our top pick.
Underperforming the market in 2014
The KL Financial Index (KLFIN) fell by 7.4% in 2014, underperforming the KLCI by 1.8%. This primarily reflects the negative outlook for banks. The sector’s financial performance was disappointing, with 9M14 net profit up a mere 2.8% yoy.
Projecting 10% net profit growth in 2015
We are forecasting 10.4% net profit growth in 2015, supported by an expansion of 8.6% in net interest income and 10.5% in non-interest income. There could be downside risk to our forecast arising from wider-than-expected margin erosion and unexpectedly weak non-interest income growth.
New threats in 2015
In 2015, banks will have to grapple with new earnings threats (1) a potential slowdown in the growth of residential mortgages, (2) implementation of GST which will dent business/consumer sentiments, and (3) compliance with the new guidelines for Islamic deposits, which will further tighten banks’ liquidity.
Suppressed loan growth
We see limited prospects for an improvement in loan growth in 2015 given the anticipated slowdown in the growth of residential mortgages. As such, we are forecasting stable loan momentum of 9-10% in 2015, on par with the level in 2014.
Source: CIMB Daybreak - 15 January 2015
Recommendation: Under Weight
After a tough year in 2014, the operating environment does not look any easier for Malaysian banks in 2015. Apart from sliding lending yields, banks will have to contend with (1) GST’s negative impact on business/consumer sentiments, (2) keen competition for deposits, (3) slowing residential mortgages, and (4) guidelines for Islamic deposits. All the above underpin our cautious stance on the earnings outlook for banks. We retain our Underweight on the sector, keeping Maybank as our top pick.
All the above underpin our cautious stance on the earnings outlook for banks. We retain our Underweight on the sector, keeping Maybank as our top pick.
Underperforming the market in 2014
The KL Financial Index (KLFIN) fell by 7.4% in 2014, underperforming the KLCI by 1.8%. This primarily reflects the negative outlook for banks. The sector’s financial performance was disappointing, with 9M14 net profit up a mere 2.8% yoy.
Projecting 10% net profit growth in 2015
We are forecasting 10.4% net profit growth in 2015, supported by an expansion of 8.6% in net interest income and 10.5% in non-interest income. There could be downside risk to our forecast arising from wider-than-expected margin erosion and unexpectedly weak non-interest income growth.
New threats in 2015
In 2015, banks will have to grapple with new earnings threats (1) a potential slowdown in the growth of residential mortgages, (2) implementation of GST which will dent business/consumer sentiments, and (3) compliance with the new guidelines for Islamic deposits, which will further tighten banks’ liquidity.
Suppressed loan growth
We see limited prospects for an improvement in loan growth in 2015 given the anticipated slowdown in the growth of residential mortgages. As such, we are forecasting stable loan momentum of 9-10% in 2015, on par with the level in 2014.
Source: CIMB Daybreak - 15 January 2015
