KUALA LUMPUR (Jan 22): Malaysia’s property market is now showing signs of improvement that will lift Malaysian banking stocks under pressure from uncertainties over data-centre outlook, according to CIMB Securities.
A rising inflationary environment typically boosts property valuations, which in turn enhances collateral values for loan portfolios, CIMB Securities said in a note. Historical evidence suggests this would have a positive effect of lowering credit costs for the banking sector, it said.
“We do not foresee any major earnings downgrade risk for the banks” from the unexpected US export restrictions on advanced chips, CIMB Securities said. “Rather, we believe there may now be a potential new positive catalyst emerging from an improved property market.”
Shares of Malaysian banks have been partly affected by a broad market selldown last week, after the Biden administration unveiled a slew of measures to control the exports of advanced computing semiconductors and artificial intelligence (AI) chips crucial for data centres.
CIMB Group Holding Bhd (KL:CIMB), the country’s second-largest bank by assets, was one of the worst-affected, falling as much as 4% since Jan 13 before rebounding slightly.
There is renewed investor confidence in the sector, CIMB Securities alerted, pointing to a near record-high transaction volume in the property market, while the transaction value may be on course for a new record high.
A better property market valuation will be positive for banks as collateral valuation is adjusted, the house said, noting that the last property boom in 2009-2012 led to credit costs falling to 10-to-20 basis points annually in the subsequent two years.
That compares to the normal range of 25-to-30 basis points, and sensitivity analysis shows that a 10-basis-point change in credit cost could lead to an up-to-12% increase in target prices, the house highlighted.
Credit costs — the increase in provisions set aside by banks for potential losses from loans turning sour, or adverse economic conditions — would probably average 25 basis points for the sector in 2025, according to CIMB Securities’ estimates.
The top beneficiaries would be AMMB Holdings Bhd (KL:AMBANK) and Affin Bank Bhd (KL:AFFIN), which would see their target prices rise by nearly 12%, followed by a potential increase of 11% for RHB Bank Bhd (KL:RHBBANK) and 10% for Alliance Bank Malaysia Bhd (KL:ABMB), the house said.
“If anything, the uncertainty may limit the potential for loan growth upgrades,” it said. “All in, we reckon the banking sector’s upgrading cycle remains intact.”