Investment Highlights

• Banks’ 1Q23 core calendarised earnings rose by 8% YoY after stripping out the impact of Cukai Makmur from banks’ earnings in 1Q22. The improved earnings were underpinned by a stronger non-interest income (NOII) which offset the weaker net interest income driven largely by a compression in net interest margins (NIM). The NIM of banks was compressed due to an increase in funding cost. The overall non-interest income (NOII) of banks rose YoY contributed by an improved FX profits, treasury, and markets income. Notably, CIMB reported stronger trading and FX income while Hong Leong Bank chalked up an increase in trading, investment, and FX profits. Elsewhere, RHB Bank’s higher treasury income (net FX profit, realised and marked-to-market gains on securities) offset a lower fee income from IB, brokerage, income from asset management and commercial banking.

• On QoQ basis, 1Q23 underlying earnings of banks declined by 6% contributed by a lower NII of 10.4% from NIM compression due to higher cost of funds, partially offset by a stronger NOII, lower operating expenses (OPEX) and allowances for loan losses. The overall improvement to NOII of banks on QoQ basis was driven by CIMB’s stronger investment and trading income. OPEX of banks decreased by 5.5% QoQ supported mainly by the lower personnel and marketing expenses of Maybank as well as the decline in staff, marketing, admin, and general expenses of RHB Bank.

• 1Q23 earnings of the banks under our coverage were all within expectations. The results of all banks (Maybank, Public Bank, RHB, Hong Leong Bank, CIMB, Alliance Bank and Bank Islam) were within our net profit estimates. Meanwhile, AMMB’s results were within consensus projection.

• Sector overall loan growth moderated in 1Q23 with a slower growth rate of 6.2% YoY (4Q22: 6.5% YoY) (Exhibit 4).

With the exception of AMMB, most of the bank’s domestic loans reported a slower growth in 1Q23 compared to 4Q22.

• The underlying NIMs of banks slipped in 1Q23. The sector’s average NIM fell sharply by 30bps QoQ or 14bps YoY to 2.11% owing to a higher funding cost from stiffer deposit competition. Compared to 4Q22, all the banks under our coverage reported a steep compression due to an increase in funding costs. The average CASA ratio (based on our stock coverage) slid further to 34.7% in 1Q23 from 35.6% in 4Q22. CASA growth continues to be moderate with the increase in deposits, particularly retail placements towards FDs after the increase in interest rates (OPR hikes by 125bps to 3%).

Source: AmInvest Research - 9 Jun 2023