KUALA LUMPUR (Sept 3): Maybank Investment Bank (Maybank IB) projects a core net profit growth of 7.8% year-on-year (y-o-y) for the banking sector in 2024, supported by an increase in operating profit and a slight reduction in credit costs.

Maybank IB said profit growth will be supported by a 7.6% increase in operating profit and a slight reduction in credit costs to 22 basis points. It forecast an average return on equity (ROE) of 10.4% in 2024 for the banks under its coverage.

Moving into 2025, the house anticipates a 6.1% rise in core net profit, fuelled by steady domestic loan growth of 5.5%, marginally expanding net interest margins (NIMs), and lower credit costs at 21 basis points.

"We nevertheless expect domestic loan growth to sustain its momentum (+5.5%; gross domestic product growth: 5.1%), and NIMs to expand marginally (plus two basis points). 

"Amid slightly lower credit costs (21 basis points), we project faster net profit growth of 6.1% y-o-y and a higher average ROE of 10.5%." the house said in a note on Tuesday.

For the second quarter of 2024, banks demonstrated a robust performance, with a cumulative core net profit increase of 9% y-o-y for the first half of the year, noted Maybank IB.

This was driven by a 7% growth in operating profit and stable credit costs. 

Domestic loan growth sustained its momentum at 7% y-o-y, while quarter-on-quarter NIM expansion and reduced credit costs contributed positively. These gains were partially offset by slower non-interest income and a negative Jaws ratio.

Maybank IB anticipates the industry's loan growth to be at 5.5% in both 2024 and 2025, aligning closely with the banks' guidance of 5% to 7% group loan growth in 2024. 

Notably, RHB Bank Bhd (KL:RHBBANK) revised its loan growth estimate to 6.5%-7% for the financial year ending Dec 31, 2024 (FY2024), up from an earlier guidance of over 4.5%. "However, our loan growth assumptions remain conservative, considering varying targets among banks like AMMB Holdings Bhd (KL:AMBANK) and Bank Islam Malaysia Bhd (KL:BIMB)," said Maybank IB.

The house has adjusted its ratings, downgrading Alliance Bank Malaysia Bhd (KL:ABMB) to 'hold', while upgrading RHB Bank to 'buy'. "Our top 'buy' recommendations are AMMB, CIMB Group Holdings Bhd (KL:CIMB), Public Bank Bhd (KL:PBBANK), RHB Bank, Hong Leong Bank Bhd (KL:HLBANK), and Hong Leong Financial Group Bhd (KL:HLFG)."

The house noted that Public Bank had raised its FY2024 ROE target to over 12.5% from over 12% previously, while other banks maintained their guidance. 

Dividend yields also remain attractive, with CIMB announcing an interim special dividend per share (DPS) of seven sen, consistent with the special DPS announced at the end of 2023. 

However, further special dividends appear unlikely in the near future, given the optimal capital ratios, with a common equity Tier 1 ratio of 14.5%.

Overall, Maybank IB maintained its positive stance on the banking sector, driven by solid earnings, manageable credit costs and stable loan growth, all contributing to a favorable outlook for 2024 and 2025.

At the time of writing, Alliance Bank shares had slipped three sen or 0.7% to RM4.28, valuing the group at RM6.62 billion, while RHB Bank shares gained one sen or 0.2% to RM6.12, translating into a market capitalisation of RM26.70 billion.

CIMB shares slid 13 sen or 1.6% to RM8.17, valuing the group at RM87.40 billion, while Public Bank gained four sen or 0.8% to RM4.79, translating into a market capitalisation of RM93 billion.

Hong Leong Bank shares slipped two sen or 0.1% to RM21.24, valuing the group at RM46 billion, while Hong Leong Financial Group shed eight sen or 0.4% to RM18.90, with a market capitalisation of RM21.70 billion.