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Wednesday, October 24, 2018

AmInvest Research retains overweight on banks

Wednesday, 24 Oct 20189:46 AM MYT

KUALA LUMPUR: AmInvestment Research is retaining its overweight call on the banking sector as it expects them to deliver decent earnings growth despite slower economic expansion.

It said on Wednesday its buy calls are RHB Bank (FV: RM6.10), Public Bank (FV: RM26), Alliance Bank (FV: RM5), BIMB Holdings
(FV: RM5.40), Maybank (FV: RM10.70) and MBSB (FV: RM1.27).

“Despite the challenges with the GDP growth seen moderating to 4.2% to 4.5% for 2019 from 4.8% to 5.0% in 2018, we expect the banking sector to still deliver a decent earnings growth of 6.2% for 2019,” it said.

AmInvest Research said the return on equity for the sector is projected to be between10.0% and 11.0% for 2019.

“Barring a deterioration in the US and China trade spat, we expect asset quality for banks to remain stable. Valuations for banks have turned undemanding again after the recent retracements in share prices,” it added.

It issued the report after Bank Negara announced on Tuesday the net stable funding ratio (NSFR) requirement for banks will not be implemented on Jan 1, 2019. The observation period on the NSFR was extended for another year until 2020.

“We understand that on-site assessments will be carried out to check on the maturity and robustness of banks’ funding practices. The final date for the implementation of the NSFR has yet to be announced,” it said.

The research house said majority of banks have already reported NSFRs which are above the minimum requirement of 100%.

Nevertheless, it believes there are still some financial institutions with NSFRs lower than the minimum requirement. This deferment will provide more room for these FIs to catch up on their NSFR levels.

“In our view, the intensity of deposit competition is dependent on 3 key factors: i) banks’ loan growth; ii) the need to build up liquidity; and iii) the necessity to raise long-term stable funding for the NSFR.

“Generally, we expect deposit competition to ease from the changes on the NSFR. It is expected to lessen pressure on banks’ funding cost and NIM in the near term. Pending the banks’ new guidance on NIMs, we are leaving our earnings’ estimates for banks unchanged,” it said.


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