KUALA LUMPUR: Local banks will likely remain a safe haven amid recessionary concerns on “better near-term earnings growth security”, said Kenanga Investment Bank Bhd.
Its research unit said demand for loans should continue to be supported by more working capital needs while interest rate upcycles should bolster margins.
“We expect normalisation in the second half of the year should there be no further hikes beyond the anticipated 25 basis points (bps) bump in January 2023,” it said.
On the flip side, Kenanga Research said, banks are preparing against possible erosion in asset quality if inflationary pressures get the best of the market.
“Still, we reckon present buffers are sufficient with hopes of writebacks should the above anxieties prove to be lacking. That said, the longer term outlook for the sector hinges on gross domestic product outperformance to keep loan growth upbeat amid possible margin reversion as rate competition brews,” it added.
The research house reckons there will be a “steady state” overnight policy rate (OPR) at 3.00%.
“While the US Federal Reserve had a very hawkish bearing on the Fed Funds Rate (3.75-4.00%, plus 375 bps in 2022), BNM has been relatively moderate with OPR hikes (2.75%, plus 100 bps in 2022) and we expect monetary tightening to halt in the coming quarters.
“We anticipate one final 25 bps hike in the January 2023 monetary policy committee (MPC) meeting,” it added.
Kenanga Research said the domestic economy will still face inflationary pressures but “perhaps at a lesser extent compared to regional counterparts, thanks to broad-based improvements in output (led by manufacturing and service industries.”
“Due to this, we believe BNM may take a more observatory position on the laggard impact of interest rates on private consumption before deciding its next move.
“While we are hopeful for further correction in the global supply chain to rebalance trade, the leading catalyst for prosperity would be a complete reopening of China to drive the commodities market and fuel further manufacturing output,” it continued.
Kenanga Research anticipates industry loan growth to come in at 4.0-4.5% in 2023 against 2022’s anticipated close of 5.5-6.0%.
Its top picks for the first quarter of this year are Malayan Banking Bhd with a target price of RM10.40; CIMB Group Holdings Bhd at RM6.40; Alliance Bank Malaysia Bhd at RM4.20 with Public Bank Bhd upgraded to an “outperform” call with a target price of RM4.70. – Bernama
