KUALA LUMPUR: Malaysian banks are expected to face challenging loans growth and further downside on asset quality, although recent central bank measures could help to alleviate some pressure.
Kenanga research expects credit charge reporting to not be as severe as in the previous economic downturn as Bank Negara's recent measures will mitigate pressure on asset quality, especially on each bank's credit assessment.
"The implementation on Basel III standards beforehand and bringing down the high Household debt have prompted the banks to be very selective in portfolio exposure mitigating the potential uptick in asset quality deterioration.
"Furthermore, the recent measures (6-month moratorium, Restructure & Rescheduled) will support the mitigation in asset quality deterioration," it said.
However, loans growth will be challenging due to a slowing economy and banks being risk averse owing to the global recession.
"The recent liberalisation of lending requirement applies only to purchase of shares and to the broad property sector (heavily collateralised – reducing credit loss assessments); thus, we believe banks will still be risk averse in lending ahead especially to those that are low-collateralised and areas slow in recovering
from the impending economic downturn – all this to protect credit loss assessments and asset quality," said Kenanga.
The research house has slashed earnings estimates of the banks under its coverage by 11% as it revised its loans and NIM compression downwards and expects higher credit costs.
However, Kenanga finds the banks well buffered with CET1 still above the required regulatory level of 7%.
Its top picks for the sector are Maybank (TP: RM8.50) and Public Bank (TP: RM18.50).
Kenanga slashes forecasts on banks, challenging loans growth ahead
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