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KUALA LUMPUR (March 7): Fitch Solutions Country Risk and Industry Research has upgraded its recommendation on RHB Bank Bhd to "outperform" from "market perform", and maintained "market perform" on Malayan Banking Bhd (Maybank) and CIMB Group Holdings Bhd from a relative value perspective.

In a report on Monday (March 6), the firm said the Malaysian banks saw financial year 2022 (FY2022) core net profit growth (excluding one-offs such as the prosperity tax's impact) of about 12% year-on-year (y-o-y) at Maybank, and 34% y-o-y at RHB and CIMB, on higher net interest income as rising rates fed through, as well as lower provisions.

Fitch Solutions said the bottom line improvement at CIMB was also driven by good operating expenditure management, as its structured cost take-out plan progressed along well.

It said non-interest income dropped across all three banks due to poor market conditions during the year, and overall fee income declined at Maybank and RHB.

“The net interest margin (NIM) expansion at all three Malaysian banks has likely run its course for this cycle, as all three banks guided for flat to lower NIMs in FY2023 due to funding cost pressure.

“Maybank saw a quarter-on-quarter (q-o-q) NIM drop in the fourth quarter ended Dec 31, 2022 (4QFY2022), as the lagged effect of deposit repricing caught up, and guided for a five- to eight-basis-point (bps) decline in the FY2023 NIM due to the intense deposit competition in Malaysia and most regional markets.

“CIMB’s NIM was up 2 bps q-o-q, thanks to its Singapore and Indonesian operations, but it also expects its NIM to have peaked in 4Q for similar reasons. Its guidance was for a 5-10 bps NIM contraction in FY2023,” said the firm.

Fitch Solutions said RHB was the outlier, with its guidance for a broadly stable NIM in FY2023, as unlike fellow peers, the bank is optimistic about sustaining its current account savings account (CASA) ratio at around the current level in 2023.

“Asset quality continued to improve in 4Q, and generally trended well during the year. FY2022 provisions were thus meaningfully reduced at CIMB (-51% y-o-y) and RHB (-43% y-o-y), while Maybank saw a smaller drop (-14% y-o-y).

“CIMB has typically had the highest credit costs among the three banks, but the gap has narrowed with its credit cost down 20 bps y-o-y to 50 bps. Credit cost at Maybank fell 11 bps to 38 bps, and at RHB by 15 bps to 15 bps,” Fitch Solutions said.

The firm said FY2023 credit cost guidance is 35-40 bps at Maybank, 45-55 bps at CIMB, and 25-30 bps at RHB. RHB’s guidance factors in an about 5 bps from possible write-backs, whereas Maybank and CIMB are inclined to maintain their existing overlays in FY2023. Non-performing loan coverage, however, is still a tad lower at CIMB (93%), versus Maybank (127%) and RHB (113%).

Fitch Solutions said liquidity had tightened steadily over the past year due to higher funding costs and net CASA outflows, but loan-to-deposit ratios remained at an acceptable level.

It said FY2023 growth targets are softer across all three banks, as rising funding costs constrain the banks’ abilities to grow their deposits in a cost-effective manner, forcing them to be selective towards loan growth.

“FY2022 loan growth came in a narrow range of 6% to 7.7% y-o-y. Maybank expects loan book expansion of about 5% in FY2023, CIMB expects 5% to 6%, while RHB sees 4% to 5%.

“Capital ratios were higher q-o-q across all three banks. RHB continued to lead the pack with a high Common Equity Tier 1 ratio of 16.9%, while CIMB remained behind peers, but improved well over the last couple of years to 14.5%, which is sufficient,” Fitch Solutions said.