KUALA LUMPUR: CGS International remains positive on Malaysia's banking sector, driven by the potential for profit growth from management overlay write-backs. 

According to CGS, the large management overlays—financial reserves set aside for potential loan defaults—held by Malaysian banks are likely to enhance profits through strategic write-backs, especially as economic stability improves.

Malaysian banks collectively held RM5.33 billion in overlays as of June 2024, with Malayan Banking Bhd (Maybank) and Public Bank Bhd holding the largest reserves at RM1.7 billion and RM1.62 billion, respectively. 

CGS estimates that every 10 per writeback could boost sector-wide profits by around 1.4 per cent, with Affin Bank Bhd likely benefiting the most due to its higher loan loss coverage.

Moreover, CGS anticipates quarterly write-backs could surpass RM200 million in the coming quarters, mainly from Public Bank,  AMMB Holdings Bhd, and Affin Bank, with a possible contribution from Hong Leong Bank Bhd. 

Should Maybank begin reducing its reserve, total quarterly write-backs may exceed RM300 million, providing further profit upside. 

Beyond the write-backs, CGS expects stronger net interest margins and potential dividend increases to bolster sector performance, with Hong Leong Bank and Public Bank as top picks due to their solid balance sheets and prudent risk management.

"The capital management initiatives at many banks, coupled with improving interest margins, support our continued 'Overweight' call on the sector," CGS noted in the report.

Overall, CGS reaffirmed its "Overweight" stance on Malaysia's banking sector due to the sector's resilience and strategic moves, with management overlay write-backs and capital initiatives providing promising growth opportunities for Malaysian banks.

https://www.nst.com.my/business/corporate/2024/11/1130822/analysts-positve-malaysias-banking-sector-outlook