KUALA LUMPUR (June 27): Kenanga Research maintained an "overweight" stance on Malaysia's banking sector, which remains resilient in the face of a complex economic landscape, bolstered by strategic risk management and a focus on high-quality assets.
In a note on Thursday, the research house cited the sector’s resilience is underpinned by a projected loan growth of 5.5-6% for calendar year 2024 (CY2024), outpacing the anticipated gross domestic product (GDP) growth of 4.5-5%.
The research house highlighted CIMB Group Holdings Bhd (KL:CIMB), RHB Bank Bhd (KL:RHBBANK), and Alliance Bank Malaysia Bhd (KL:ABMB) as its top picks.
"CIMB which has been able to reach new grounds in its return of equity (ROE) at cumulatively 11% which the group looks to sustain into the long term thanks to strengthening presence in both home and regional markets. Additionally, its dividend yield is creeping well into the mid-6% levels at current price points" Kenanga said.
"RHBBANK is also favoured for its dividends which we project to be the leader (7-8%) amongst its peers. Meanwhile, its associate Boost Bank may soon enter the public domain which could garner greater interest in the near-term" it added.
ABMB stands out for its solid fundamentals and leading current account and savings account ratios, providing the bank with the flexibility to navigate interest margins and market share acquisition strategies effectively.
Additionally, Kenanga noted rising concerns on inflation and productivity challenges stemming from the rationalisation of diesel subsidies, which may have medium-term implications.
"At the meantime, the progressive loading up of household loans from sustained mortgage demand could persist thanks to more affordably-priced units launched," Kenanga said.
The research house also expects the overnight policy rate (OPR) to hold steady at 3% throughout 2024, providing stability for banking operations.
Bank Negara Malaysia (BNM) is likely to closely monitor monetary policies due to uncertainties from diesel subsidy changes and recent sales and service tax (SST) hikes.
"On the other hand, the recent two percentage point increase in selected SST categories is also muddled into upcoming inflation reports. That said, BNM is required to balance interest rates as keeping them lofty could be essential in supporting the already soft ringgit as lowering it may spur institutions to adopt outflow positions from the country" it added.