KUALA LUMPUR (April 24): AmInvestment Bank has cut earnings forecasts for most banks by 2.9% to 9.4% for financial year 2025 (FY2025) and FY2026, citing concerns over higher credit costs from slower economic growth and ongoing US-China trade tensions.

The research house warned that if the trade war continues, banks may need to increase provisions, leading to higher credit costs and lower earnings. High US tariffs on Chinese goods could also indirectly affect Malaysia’s trade.

Its projections reflect a five to 10 basis points (bps) increase in credit costs amid expected slower economic growth.

As of end-2024, banks’ average net credit cost stood at 23 bps, still below the pre-pandemic 2019 level of 26 bps.

The period from 2023 to 2024 saw gradual write-backs of Covid-19-related management overlays — a trend observed not only in Malaysia, but also in Indonesia and Singapore.

AmInvestment Bank said Maybank's higher management overlays and regulatory buffers mitigate asset quality risks from economic slowdown.

It noted that even if provisions increase, credit costs are unlikely to reach the levels seen during the Global Financial Crisis (55-70 bps), as the current slowdown is caused by tariffs, which still allow room for negotiations.

The research house’s sensitivity analysis suggests that a rise in credit costs of five to 20 bps could reduce banks’ earnings by an estimated 18.5% to 21.1%.

“At this time, we do not anticipate the impact reaching double-digit figures, given the recent news suggesting the possibility of trade negotiations that could lead to lower tariffs and influence economic growth,” AmInvestment said in a note to its clients.

The research house maintained a ‘neutral’ stance on the banking sector, citing expectations of moderate earnings growth amid tighter net interest margins (NIMs), weaker investment and trading performance, and the possibility of higher credit costs.

Amid ongoing market volatility, AmInvestment prefers domestic-focused banks like RHB Bank Bhd (KL:RHBBANK) and Hong Leong Bank Bhd (KL:HLBANK), both rated as 'buy' due to their lower exposure to international markets. CIMB Group Holdings Bhd (KL:CIMB), also rated 'buy', is seen as a potential beneficiary if trade tensions ease.