Kenanga: Banks Remain Attractive Amid Economic Growth, OPR Steady At 3 Pct

KUALA LUMPUR, Sept 4 (Bernama) -- Kenanga Investment Bank Bhd anticipates that investors will continue to focus on the banking sector, which remains attractive amidst improving economic conditions.

However, from a longer-term perspective, the investment bank suggests that the market may have already seen significant investments in high-growth stocks, likely driven by foreign investors capitalising on the strengthening ringgit.

“While momentum may sustain in the short term, we are cautious about the potential for excessive lending to meet market demand, which could expose banks to heightened risk, particularly from a few large projects,” it stated in its banking sector update.

Following the second quarter of the 2024 earnings season, Kenanga has maintained its "overweight" rating on the banking sector, with all ten banks reporting earnings in line with expectations.

It said the near-term fundamentals for the sector remain strong, supported by robust domestic demand and economic development. 

Net interest margin pressure is easing as funding costs moderate, and asset quality risks are becoming less prevalent.

Regarding Bank Negara Malaysia’s overnight policy rate (OPR), which is expected to remain isolated from the pending US Federal Reserve’s rate cuts, Kenanga said that banks have limited scope to significantly reduce funding costs.

As a result, Kenanga anticipates that the OPR will remain steady at 3.00 per cent throughout 2024 and 2025.

"Banks should still benefit from supportive economic developments, such as infrastructure projects and strategic investments—like data centres—into the country, leading to increased financing needs.

“More active trading markets should also contribute to improved fee-based non-interest income, sustaining return on equity in the near term,” it added.

-- BERNAMA