KUALA LUMPUR: RHB Investment Bank Bhd (RHBIB) has maintained its “overweight” call on bank stocks as it believes banks still offer some degree of hedging against inflation despite rising recessionary risks.
The investment bank said these stocks recorded a modest five per cent growth for year-to-date July 2022, retreating from an almost 10 per cent gain between January 2022 and early May 2022.
“Still, Malaysian banks have fared relatively better than its regional peers in Singapore and Indonesia, which are down seven per cent and five per cent (respectively) in US dollar terms,” it said in a note today.
It believes Malaysian banks would continue to outperform the broader market, offering decent earnings growth of five per cent and dividend yield, while trading at an undemanding 1.0 times price-to-book value ratio.
In terms of net profit margin (NIM), RHBIB said the earlier and higher-than-expected overnight policy rate hikes should have a positive impact on banks’ NIM in 2022-2023.
“Our calculations point to a circa two per cent uplift in the financial year 2022 (FY2022) sector earnings, with smaller banks expected to post stronger improvement of three to five per cent, versus circa two per cent for large banks,” it said.
RHBIB added that its economists expected Bank Negara Malaysia to raise interest rate by 25 basis points (bps) to 2.50 per cent in September 2022, its third hike for the year.
On loan growth, RHBIB believes banks would sustain their loan growth in the second half of 2022 as the rebound in consumption and business activities from the depressed levels during the pandemic lockdown periods, should see banks achieving their mid-single-digit loan growth for 2022.
The investment bank projected the banking sector to see its earnings grow 5.4 per cent in FY2022, capped by the Cukai Makmur (Prosperity Tax).
Overall, it said the domestic economic recovery, reopening of international borders, and special RM10,000 Employees Provident Fund withdrawal from April 2020 should sustain banks’ business momentum and support the delivery of another set of decent results for the second quarter of 2022.
However, the recovery outlook was getting clouded, it said, noting that with the Russia-Ukraine war likely to drag on for quite a while longer, global inflation had been made worse.
“Aggressive monetary tightening across the world would also exacerbate the risk of recession,” it said.
RHB economists expected gross domestic product growth to moderate to 4.5 per cent in 2023 from 5.3 per cent in 2022. – BERNAMA
