KUALA LUMPUR (Feb 20): Malaysian banks’ earnings will likely be subdued quarter-on-quarter (q-o-q) in the final three months of 2023, hurt by net interest margin pressure, higher expenses and elevated credit costs, RHB Investment Bank (RHB IB) flagged on Tuesday.

Net interest income could be “flattish” with the expansion in the loan base offset by competition for deposits and impact of May’s policy rate increase, RHB IB said ahead of upcoming results. Investors should also expect higher operating expenses and loan provisions, the research house cautioned.

“Generally, we do not expect adverse developments on asset quality,” RHB IB said. Sector profit-before-tax, however, could be muted q-o-q though net profit could be boosted by AMMB Holdings Bhd, which will book RM538 million in tax credit, it noted.

Shares of Malaysian banks have mostly risen as investors bet on expanding loans and rising fees amid heightened competition for deposits and volatile markets. Affin Bank Bhd was the best performer with a 25% surge year-to-date though Hong Leong Financial Group Bhd underperformed with 0.4% decline.

Overall, RHB IB maintained its "neutral" stance on the banking sector with CIMB Group Holdings Bhd ("buy"; target price or TP: RM6.88), AMMB ("buy"; TP: RM4.70), Hong Leong Bank Bhd ("buy"; TP: RM23.20), and Alliance Bank Malaysia Bhd ("buy"; TP: RM4.00) as its top picks.

Earnings of CIMB, which will come in next Thursday (Feb 29), could “slightly outperform” the research house’s estimates, driven by higher non-interest income and lower-than-expected credit costs, RHB IB noted. Further, dividend per share may also exceed forecasts, it said.

For AMMB, the research house said its earnings could be bolstered by the utilisation of the tax credits, which could lower its effective tax rate and lift its net profit. AMMB is expected to release its results next Monday (Feb 26).

Alliance Bank, scheduled to release its third-quarter results next Tuesday (Feb 27), could report “slightly softer” net profit q-o-q and year-on-year, RHB IB said. Alliance Bank’s renewal of its bancassurance contract could drag non-interest income to about 15% of total income in the third quarter from 17% in the second quarter, it noted.

Hong Leong Bank’s earnings growth, meanwhile, could be “steady” underpinned by its resilient net interest margins, and robust fee income. Hong Leong Bank is expected to announce its result next Wednesday (Feb 28).