Investment Highlights

• Banks’ 4Q22 core calendarised earnings grew slightly higher by 2.2% QoQ after stripping out the impact of Cukai Makmur and CIMB Group’s exceptional item (net of tax and minority interest) of RM6mil, together with modification loss. The improved earnings were underpinned by stronger net interest income (NII) from loan expansion, higher net interest margin (NIM), increased Islamic banking income and lower loan provisions. The overall non-interest income (NOII) of banks on QoQ basis fell due to Maybank’s lower core fees, treasury and markets income. Also, contribution to the decline was Public Bank’s lower investment, trading income and forex profits.

• 12M22 underlying earnings of banks climbed 18% YoY, contributed by higher NII of 9.4% YoY from expansion of loans and NIM coupled with lower loan impairment allowances, partially offset by weaker NOII from lower unit trust, stock broking, investment and trading income. The overall operating expenses (opex) of banks grew 5.1% YoY, driven largely by Maybank’s higher personnel cost from collective agreement (CA) adjustments and marketing expenses (credit card gift points, advertising and publicity spend). In addition, RHB Bank’s opex grew 5.5% YoY as a result of higher personnel, establishment, marketing, administration and general expenses.

• No surprises on earnings in 4Q22 as most banks results were within expectations. The results of all banks (Maybank, Public Bank, RHB, Hong Leong Bank, CIMB, Alliance Bank and Bank Islam) were within expectations. Meanwhile, AMMB’s results were slightly above consensus estimates due to lower credit cost.

• Sector’s overall loan growth decelerated in 4Q22 with a slower growth rate of 6.5% YoY (3Q22: 7.8% YoY) (Exhibit 4). Most banks reported a slower pace in loan growth. With the exception of RHB and Public Bank, all the other banks’ domestic loans grew at a faster pace compared to industry growth rate of 5.7% YoY.

• The underlying NIMs of most banks expanded in 4Q22. The sector’s average NIM rose by 4bps QoQ to 2.41% benefitting from the OPR rise despite higher funding cost with stiffer deposit competition in 4Q22. Most of the banks under our coverage reported uplifts in NIMs due to OPR hikes. The notable improvement was Public Bank’s improved NIM by 16bps QoQ to 2.58%, contributed by both OPR hikes and higher CASA balances. The average CASA ratio (based on our stock coverage) slid further to 35.6% in 4Q22 from 37.1% in 3Q22. We see a likelihood for a pause in OPR hikes at the next MPC meeting on 9 Mar 2023 with the OPR retained at 2.75%.

Source: AmInvest Research - 8 Mar 2023