KUALA LUMPUR: AmResearch is maintaining a Neutral recommendation on the banking sector while its sector big cap top pick is still Maybank.

The research house said on Thursday, Sept 23 that it believes Maybank's ability to achieve a long-term ROE of 16%, and a milder-than-expected impact to impaired loans when it switches to FRS139 in September 2010, are not yet fully reflected in its current share price.

"Our mid cap top picks are still RHB Cap and Hong Leong Bank. Our small cap top pick remains Alliance Financial Group," it said.

AmResearch said the potential caps to consumer loans are prudent, and positive for banks' earnings in the longer run in its view.

It said potential moves to reduce the loan-to-value of property-related loans as well as limits to credit cards will not lead to any major downgrades to net earnings.

On the contrary, the increased buffer will likely be positive for the banking sector in the longer term, in its view.

"Loan loss provisions has a larger impact to earnings, with loan loss provisions shaving off 31.1% and 28.5% off the sector's pre-tax profit in 2008 and 2009. We anticipate loan loss provisions to reduce pre-tax profit for the sector by 19.3% in 2010, 16.9% in 2011 and 15.7% in 2012," it said.