Investment Highlights

• Banks’ 3Q23 core calendarised earnings rose modestly by 2.9% QoQ with subdued total income and marginally higher operating expenses (OPEX) offset by lower loan provisions. On QoQ basis, net interest income (NOII) of banks improved slightly by 1.9% QoQ supported by loan book expansion and improvement in net interest margin (NIM). Noninterest income of banks in 3Q23 declined 9.2% QoQ. This was attributed largely to Maybank’s unrealised derivatives losses despite core fees rose QoQ and CIMB’s lower gains from sale of NPLs in Indonesia compared to preceding quarter. Allowances for loan losses fell 13.7% QoQ, leading to a lower annualised net credit cost of 19bps in 3Q23 compared to 23bps in 2Q23.

• 9M23 underlying earnings of banks rose 5% YoY contributed by higher NOII and lower provisions, partially offset by weaker NII from NIM compression and higher overhead expenses (OPEX). NOII of banks increased 13.7% YoY for 9M23 driven by Maybank’s higher FX gains and CIMB’s stronger investment and market related income. Elsewhere, Public Bank’s NOII increased YoY due to higher stockbroking and FX income. OPEX of banks climbed 5.2% YoY in 9M23 attributed largely to increase in personal cost from wage adjustments of unionized employees under collective agreements and higher establishment expenses which included IT cost.

• 9M23 earnings of all banks under our coverage were within expectations. Results of all banks (Maybank, Public Bank, RHB, Hong Leong Bank, CIMB, Alliance Bank and Bank Islam) were within our full-year net profit estimates.

• Overall sector loan growth slowed down to 5.7% YoY in 3Q23 vs. 6.2% YoY in 2Q23 (Exhibit 4). Most banks’ domestic loans outpaced the industry’s 4.3% YoY as of end Sept 2023. Notably, Alliance Bank’s loan growth accelerated to 10% YoY contributed by a pickup in pace of loans from all segments, SME, commercial, corporate and consumer banking while Hong Leong Bank chalked up a strong domestic loan growth of 7.5% YoY led by mortgages, auto finance, SME and commercial loans.

• NIM of banks improved slightly by 2bps QoQ to 2.13 in 3Q23 contributed by improvement in funding cost. Nevertheless, deposit competition persists with ongoing campaigns by banks in 4Q23, offering competitive FD rates which will tie maturities of time deposits to 2024. Arising from this, it is likely to see a QoQ contraction in NIM of banks again in 4Q23. Cost of funds are likely to remain elevated in near term until Fed Reserve’s pivot on interest rates. Average CASA ratio (based on our stock coverage) slid marginally to 34.5% in 3Q23 from 34.6% in 2Q23.

Source: AmInvest Research - 7 Dec 2023