KUALA LUMPUR – Kenanga Investment Bank Bhd (Kenanga) has maintained its “overweight” call on the banking sector as the banks’ post-results prospects remained sustainable and resilient, with shifting fundamentals supportive of medium-term earnings.
While recessionary concerns may arise, pressing near-term risks were not seen due to prudent asset quality management, the research house said in a note today.
“For those with financial years ending December, the final fourth quarter 2022 (Q4 2022) is not expected to be fundamentally surprising as loans performance has already been cemented over the last nine months.
“That said, net interest margins (NIMs) may see a shake-up as ongoing competition for deposits only appears to be intensifying,” it said.
Kenanga also noted that the biggest earnings risk is unexpectedly high provisions on greater impairments and/or provisions, though most corporates are trailing behind their credit costs guidances, indicating a fair amount of room should the need arise.
However, it said that the medium-term outlook could be strained as the 2023 gross domestic product performance is expected to be relatively softer compared to 2022, which may translate to lower loans growth.
Additionally, the research house said that a higher overnight policy rate of 3.00% (should there be another 25 basis points hike during the January 2023 Monetary Policy Committee meeting) may also quell the appetite for mortgages.
Meanwhile, Kenanga said that a longer observation period may be needed to fully assess repayment concerns.
“The abovementioned stress on NIMs is also likely to only worsen. On the flip side, the impairment buffers and management overlays are due to be utilised by the banks, if not refreshed for further provisioning.
“Though not being accounted for as yet, an overall net write-back situation would drive sequentially stronger reported earnings, while normalised tax rates with the lapse of the prosperity tax would bode well for earnings,” it added. – Bernama, December 6, 2022
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