Despite all banks posted earnings within our expectations, we deem that 2Q18 was a subdued quarter for most banks. During the 2Q18 results, banks under our coverage reported a total core earnings of RM6.3bn (QoQ: -3.5%; YoY: +8.4%), which is in line with our expectations. Average loan growth of 3.6% YoY was helped by stronger consumer loan segment, while average NIM was stable at 2.29% (unchanged since 1Q18). Credit cost trended lower for most banks as the implementation of MFRS was well received by banks. We reiterate our 2018 loan growth target at 4.5-5.0%. Maintain NEUTRAL. Top picks: Public Bank (TP: RM26.00).

During 2Q18 results, banks under our coverage reported total core earnings of RM6.3bn (QoQ: -3.5%; YoY: +8.4%), which is in line with our expectations.

Profitability

Net Profit

YoY, total core net profit grew 8.4% to RM6.3bn in 2Q18, as marginally higher net interest income and lower provisions were more than offset by weaker non-interest income (NOII). During the quarter, 7 out of the 9 banks reported higher core net profit, while Affin and CIMB reported weaker core net earnings. We note that the 48.5% decline in Affin’s 2Q18 core earnings was due mainly to higher loan loss allowance, while the 5.4% decline in CIMB’s core earnings was due to lower NOII (arising from forex losses and deconsolidation of CIMB Securities).

QoQ, total core earnings declined by 3.5% to RM6.3bn in 2Q18, as muted net interest income growth (+0.4%) was more than offset by weaker NOII. During the quarter, we note that 5 out of 9 banks (namely, Affin, AMMB, BIMB, Hong Leong Bank, and Maybank) registered a decline in core net earnings, dragged mainly by lower net interest income and non-interest income, as well as higher loan loss allowance (in particular, Affin, AMMB and Maybank).

Source: Hong Leong Investment Bank Research - 18 Sept 2018