KUALA LUMPUR (June 4): Investment analysts are mixed on the banking sector’s outlook despite the bank’s loan growth remaining resilient at 6% during the three months ended March 2024.

MIDF Research, which initially expected a “tough” situation for the banking sector in 2024, has now upgraded the sector to positive, and expressed optimism on guidance in the latest results.

“Banks have confirmed that initial worries concerning CY24’s [calendar year of 2024] performance were overblown. Hence, we upgrade our call premised on a stronger top line and balance sheet growth outlook,” MIDF said in a note on Tuesday.

The positive stance is also driven by the improved outlook for the local cost of funds, thanks to the government and Bank Negara Malaysia’s (BNM) initiatives to preserve liquidity in the economy, it noted.

MIDF expects to see no slowdown in loan growth until at least next year as the loan pipeline is still strong, while positive market sentiment should also drive non-interest income (NOII) via the retail fee income component.

The research house's top picks with a "buy" call are Public Bank Bhd (KL:PBBANK) and Hong Leong Bank Bhd (KL:HLBANK).

Meanwhile, Hong Leong Investment Bank (HLIB) maintained its “neutral” stance on the banking sector as there are no new positive catalysts to spur share prices significantly higher.

The research firm is projecting the banking sector’s profit to grow at a slower rate of between 6% in FY2024 and 4% in FY2025 compared to 15% in FY2023, which lags the broader market. It noted that the FBM KLCI is seen to rise at a quicker 7% in FY2024.

“This is no thanks to NIM [net interest margin] unable to recover meaningfully, NOII growth to slow and no NCC [net credit costs] write-backs. Regardless, valuations are not excessive and hence, we feel it is too premature to turn full-on bearish,” HLIB said.

In the single large capitalisation, HLIB picks Public Bank for its defensive qualities and multi-year low foreign shareholdings. As for mid-sized banks, it favoured AMMB Holdings Bhd (KL:AMBANK) for its dividend payout bandwidth in the near future, while picking Alliance Bank Malaysia Bhd (KL:ABMB) for small-cap given its inexpensive valuation.