KUALA LUMPUR (Dec 30): Hong Leong Investment Bank Research (HLIB Research) has maintained its "Neutral" call on the banking sector and has named Malayan Banking Bhd (Buy, target price: RM9.05) as its preferred pick.
In a sector update today, the research house stated that the proposed digital banking framework by Bank Negara Malaysia (BNM), which was announced on Dec 27, is sector friendly as the goal is to enable innovative technology application in the financial sector and fill market gaps in the underserved segments.
"Hence, we think digital banks are not major threats and they can co-exist quite harmoniously with their conventional counterparts," HLIB Research said.
"Also, with an asset threshold of less than RM2 billion collectively, the five combined digital banking licences (RM10 billion) may potentially shave away only less than 1% share of system loans; we estimate that every 1% slowdown in loans growth could reduce sector earnings by 0.5%," it added.
BNM in its exposure draft said it intends to issue up to five licences to qualified applicants to establish digital banks to conduct either conventional or Islamic banking business in Malaysia.
HLIB Research noted that the modest growth outlook coupled with rising asset quality and interest rate risks prevented it from being more bullish on banks despite the attractive valuations.