According to analysts, the banking sector in Malaysia is expected to experience an increase in interest from investors seeking refuge in better-yielding stocks amid recessionary fears. Despite the recent increase in financial stocks’ shares since the economy was reopened, their values are still considered undemanding. Kenanga Research predicts that the sector’s near-term outlook will be supported by robust earnings after the fourth quarter of 2022 (4Q22) earnings.
Business-wise, the research firm maintains an “overweight” rating on the banking industry, citing pleasant surprises in the results. While declining loan growth and shrinking interest margins may result in decreased near-term interest income, non-interest performances are anticipated to improve. Decreasing credit costs and effective taxation are expected to fuel overall earnings growth, according to Kenanga Research. However, the biggest threat to the sector remains significant asset quality drags, which may be brought on by a recession or another interruption in global supply systems.
Key Players and Stock Selections
The higher dividend yield averages from current price points and more generous payouts could keep investors interested in the sector for the next quarters. Due to their defensive stances and solid market positioning, Kenanga Research includes CIMB Group Holdings Bhd, Malayan Banking Bhd (Maybank), and Alliance Bank Malaysia Bhd (ABMB) on its list of stock selections for the 1Q23 timeframe. CIMB was chosen because of its protective non-interest income (NOII) and trading results endorsed by regional organizations. The banking group has one of the largest CASA (current account savings accounts) books among large-cap banks.
Maybank, which continues to be the top dividend pick with a 7% to 8% yield, offers safety to investors who desire more stable returns. The bank’s loan portfolio is also considered to be relatively stable, with pre-emptive provisions that would comfortably cover 171% to 656% of potential defaults. Maybank Investment Bank Research continues to impute a conservative credit cost assumption of 32 and 27bps in 2023 and 2024, respectively, against the pre-Covid average of 28bps from FY17 and FY20.
Outlook and Risks
While the banking sector in Malaysia is expected to experience an increase in interest from investors, there are still risks associated with the sector. The biggest threat remains significant asset quality drags, which may be brought on by a recession or another interruption in global supply systems. However, the sector’s defensive stance and solid market positioning are expected to mitigate these risks. The higher dividend yield averages from current price points and more generous payouts are also expected to keep investors interested in the sector for the next quarters.
The research firm’s stock selections, including CIMB Group Holdings Bhd, Malayan Banking Bhd (Maybank), and Alliance Bank Malaysia Bhd (ABMB), are expected to perform well in the 1Q23 timeframe. These banks have demonstrated strong defensive stances and solid market positioning, making them attractive to investors seeking stable returns. As the sector continues to navigate the challenges posed by recessionary fears and global supply chain interruptions, these banks are well-positioned to weather the storm.
Forward-Looking Outlook
As the banking sector in Malaysia continues to evolve, investors will be watching closely to see how the sector performs in the coming quarters. With the sector’s near-term outlook supported by robust earnings, investors will be looking for signs of continued growth and stability. The key players, including CIMB Group Holdings Bhd, Malayan Banking Bhd (Maybank), and Alliance Bank Malaysia Bhd (ABMB), will be closely watched to see how they navigate the challenges posed by recessionary fears and global supply chain interruptions. As the sector continues to navigate these challenges, investors will be looking for opportunities to capitalize on the higher dividend yield averages and more generous payouts offered by these banks.
