Some concerns on asset quality remain with credit charge elevated PETALING JAYA: The banking sector’s asset quality is the key swing factor to the earnings of banks. In a report, Kenanga Research said it was keeping its “neutral” outlook on the banking sector amid concerns over asset quality with credit charge still elevated as further provisioning fuelled more uncertainties over the extent of impaired loans. “We continue with our view that asset quality will likely be the key swing factor to earnings ahead. “The recent third quarter (of calendar year 2020) showed further loan loss provisioning by the banks with earnings visibility still hazy, ” said the research house. According to Kenanga, the take-up rate for the targeted repayment assistance offered by the banks is quite muted, although it could increase, depending on the impact of the current conditional movement control order (CMCO). “As previously guided, post moratorium assistance is expected for 10%-15% of their loan book with most banks reporting such numbers so far. “B40 exposure by the banks is relatively minimal, with most reporting low-teens exposure to their loan books, ” it said. The research house also does not discount further overlays in the fourth quarter (Q4) due to repayment slippage, given the prolonged CMCO. However, the aggressive pre-emptive provisioning will give a much more optimistic credit cost level for 2021, it added. More positively, net interest margins are expected to improve due to the absence of further overnight policy rate cuts supported by repricing of deposits and unwinding of modification losses. According to the research house, the Special Relief Facility (SRF) is another contributing factor in elevating net interest margin (NIM) – the amount of money that a bank earns in interest on loans compared to the amount it is paying in interest on deposits. While there will be additional modification losses in Q4, it will likely be minimal, given that it’s a targeted three-month moratorium. “Some banks reported better current account and savings account or CASA growth (in high single digits), given the narrowing spread between fixed deposits and CASA as depositors prefer to hold cash, ” it added. The recent Q3 earnings period saw most banks meeting expectations with the absence of Day 1 modification losses. Malayan Banking Bhd, Malaysian Building Society Bhd, Public Bank Bhd and RHB Bank Bhd came in ahead of Kenanga’s and consensus expectations at over 80% of full-year estimates. However, the research house considers them as broadly tracking expectations due to the revised credit cost guidance and further loan provisioning expected in Q4. Meanwhile, Affin Bank Bhd, Alliance Bank (M) Bhd, BIMB Holdings Bhd and Hong Leong Bank Bhd (HLB) recorded results that were within Kenanga’s and consensus full-year estimates. AMMB Holdings Bhd’s financial year 2021 (FY21) first-half core net profit came to 52% of the research house’s and consensus estimates, but was considered to be below, given the revised credit cost guidance. CIMB Group Holdings Bhd’s results for the nine-month period of FY20 made up just 57% and 51% of respective estimates due to impairments in its bond book, said Kenanga. On its sector picks, Kenanga said it preferred banks with solid asset quality such as HLB, Public Bank and RHB for its capital strength. BIMB remained its top pick as a catch-up play offering a cheaper entry into 52.9%-owned Syarikat Takaful Malaysia Bhd.
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