KUALA LUMPUR (Nov 11): Malaysian banks are likely to see net profit growth of between 8% and 9% year-on-year (y-o-y) in the upcoming quarterly results, driven by a significant decline in loan loss provisioning (LLP), according to CGS International.
"Malaysian banks would start to release their third-quarter (3Q2024) financial results from the third week of November. We estimate that banks would achieve y-o-y net profit growth of 8% to 9%, slightly below the 9.5% y-o-y growth in 2Q2024," the house said.
It said the growth would be driven by a more than 20% y-o-y decline in 3Q2024 LLP, as deduced from a RM1.06 billion drop in banks’ total provision in the quarter.
"The expected decline in 3Q2024 LLP could partly be due to write-backs of management overlay by certain banks, in our view."
At the same time, the research house was not overly concerned about the slowdown in banks’ loan growth from 6.4% y-o-y at end-June to 5.6% y-o-y at end-September, which came in within expectations.
"In fact, we expect banks’ net interest income (which is affected by loan growth) to have risen a decent 3% y-o-y in 3Q2024, not far off from the y-o-y growth of 2.8% in 1Q2024 and 3.9% in 2Q2024, but significantly better than the y-o-y contraction of between 1% and 9% in 1Q2023 to 4Q2023."
This could be achieved on the back of a loan growth rate of 5.6% y-o-y at end-September, and a marginal y-o-y expansion in net interest margins (NIMs), added CGS.
"For 3Q2024 financial results, we also expect y-o-y increases of mid single-digit rates for non-interest income and 7% to 8% for overheads."
Based on the September banking statistics released by Bank Negara Malaysia on Oct 30, CGS gathered that banks recorded loan growth of 5.6% y-o-y at end-September (slower than the 6.4% y-o-y registered at end-June), while the banking industry’s gross impaired loans ratio improved from 1.59% at end-June to 1.54% at end-September.
Meanwhile, it said downside risks to its expectations of 8%-9% y-o-y net profit growth in 3Q2024 include an unexpected y-o-y spike in overheads, significantly weaker investment income, and higher LLP for overseas operations.
It reaffirmed its 'overweight' call on banks, premised on potential rerating catalysts from an improved outlook for NIMs, continuous write-backs in management overlay by banks, and increases in banks’ dividend payout ratios.