Investment Highlights

• The net stable funding ratio (NSFR) requirement on banks in Malaysia will not be implemented on 1 January 2019.

• BNM has just announced the extension for the observation period on the NSFR 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.

• At this moment, we understand the majority of banks have already reported NSFRs which are above the minimum requirement of 100%. Nevertheless, we believe there are still some FIs 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.

• Despite the challenges with the GDP growth seen moderating to 4.2–4.5% for 2019 from 4.8–5.0% in 2018, we expect the banking sector to still deliver a decent earnings growth of 6.2% for 2019. The ROE for the sector is projected to be between 10.0% 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.

• Maintain OVERWEIGHT on the sector. Our BUY calls are RHB Bank (FV: RM6.10/share), Public Bank (FV: RM26.00/share), Alliance Bank (FV: RM5.00/share), BIMB Holdings (FV: RM5.40/share), Maybank (FV: RM10.70/share) and MBSB (FV: RM1.27/share).

Source: AmInvest Research - 24 Oct 2018