KENANGA MAINTAINS 'OVERWEIGHT' CALL ON BANKING SECTOR AMID RESILIENT OUTLOOK

KUALA LUMPUR, June 27 (Bernama) -- Kenanga Investment Bank Bhd has maintained an “overweight” outlook for the banking sector as it anticipates the sector’s resilience to be mostly unchallenged, following better perspectives in targeting strong quality assets while maintaining profits. 

In a note, the bank’s research arm said loan growth is projected to be solid in 2024 at 5.5 per cent to six per cent amid rising concerns. 

It said headlines cautioned higher inflation numbers and possible dents to overall productivity stemming from recent diesel subsidy rationalisation whereby input and transportation costs may rise. 

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“We believe that stresses from here may likely materialise in the medium term and could still be subject to revisions in implementation.

“In the meantime, the progressive loading up of household loans from sustained mortgage demand could persist thanks to more affordably-priced units launched,” it added.

Kenanga also maintained its expectations for the overnight policy rate to be unchanged at three per cent throughout 2024.

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“We believe Bank Negara Malaysia may approach monetary policies with greater scrutiny as the gravity of spillovers from the diesel subsidy rationalisation remains unclear. 

“Meanwhile, the recent two percentage points increase in selected sale and service tax categories is also muddled into upcoming inflation reports,” it said.

Therefore, Kenanga noted that the central bank is required to balance interest rates to support the already soft ringgit, as lowering it may spur institutions to adopt outflow positions from the country.

Additionally, it believed the overall industry gross impaired loan would remain smooth, with banks reporting gradual improvements to respective readings. 

“While we anticipate some slight uptick in second quarter of 2024 in lieu of frontloaded festive spending, we opine that it would still remain confined as the banks had mostly ironed out their books with pre-emptive provisions being allocated to troubled accounts,” it said. 

Meanwhile, UOB Kay Hian Securities (M) Sdn Bhd, in its strategy report, said the banking sector earnings growth is anticipated to decrease to seven per cent, down from 15 per cent in 2023, primarily due to the absence of the prosperity tax and a slower expansion in non-interest income. 

“However, a more stable net interest margin outlook and a rebound in loan growth, projected at 5.5 per cent to six per cent (compared with 5.3 per cent in 2023), are expected to support overall growth,” it said.

-- BERNAMA