Banking Sector Thriving In 2024, Sees Major Acquisitions
By Karina Imran
KUALA LUMPUR, Dec 10 (Bernama) -- The Sarawak state government’s acquisition of a major stake in Affin Bank Bhd and Public Bank’s purchase of equity in LPI Capital Bhd, plus banks generally being highly profitable, were the major news items in Malaysia’s banking and financial landscape this year.
The Sarawak government’s acquisitions were the talk of the town when it became the first state government to own a commercial bank, while Public Bank’s foray into LPI would enable its further expansion into Malaysia’s insurance market.
Aside from these deals, the banking sector was marked by higher loan growth, increased profitability, and ample liquidity, which were helped by a robust economic expansion.
As the year comes to a close, there is speculation the acquisitions by the Sarawak state government and Public Bank would trigger similar deals, with public entities buying into banks and major banks acquiring other finance-related companies.
These strategic corporate deals signalled a transformative shift within Malaysia’s banking sector, paving the way for more diversified financial institutions.
It could be indicative of a broader trend towards consolidation within the banking industry as they seek to enhance their competitive edge and expand market share.
Sarawak, through wholly-owned subsidiary SG Assetfin Holdings Sdn Bhd, bought its stake from Lembaga Tabung Angkatan Tentera and Boustead Holdings Bhd, raising its equity in Affin to 31.25 per cent.
The deal was finalised on Sept 27.
Meanwhile, Public Bank acquired 175.9 million shares, representing a 44.15 per cent stake in insurer LPI Capital on Dec 4.
Banking sector thriving in 2024
The banking sector was highly profitable this year, driven by stable economic conditions, lower inflation and increased corporate demand.
Analysts are forecasting the banking system’s loan growth -- an economic bellwether -- to range between 4.0 to 6.0 per cent, compared to 5.3 per cent in 2023.
Bank Muamalat Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid opined that banks are well capitalised with Common Equity Tier 1 (CET1) ratio, Tier 1 ratio and Total Capital Ratio (TCR) standing at 14.4 per cent, 14.9 per cent and 18.0 per cent, respectively.
These are beyond the minimum level of 4.5 per cent, 6.0 per cent and 8.0 per cent, respectively.
“The banks are highly profitable with the average return on assets (ROA) and return on equity (ROE) for the first three quarters of 2024 stood at 1.30 per cent and 11.80 per cent, respectively from 1.30 per cent and 11.47 per cent in the same period last year,” he told Bernama.
Industry loan growth
Total loan growth in the first 10 months of 2024 has averaged 6.0 per cent versus 4.6 per cent in the same period last year, supported by the household and non-household segments.
The loan growth in both segments accelerated by an average of 6.3 per cent (household) and 5.5 per cent (non-household) in the first 10 months of 2024 from 5.5 per cent and 3.2 per cent, respectively, in the same period last year.
“While banks continue to grow their loan books, they remain vigilant regarding asset quality,” said Mohd Afzanizam.
In addition, the loan loss coverage ratio stood at 126.6 per cent, indicating that the banks have remained prudent in their loan loss provisioning policies given that the size of loan loss provisions exceeds that of impaired assets.
Apart from that, liquidity in the banking system remained ample, with the liquidity coverage ratio (LCR) standing at 146.8 per cent as of October 2024, which is well above the minimum prescribed level of 100 per cent.
UOB Kay Hian Wealth Advisors head of investment research Mohd Sedek Jantan noted that asset quality and credit costs remained stable, supported by adequate provision buffers.
He added that the sector maintained stable asset quality, with the gross impaired loans (GIL) ratio returning to pre-COVID levels.
GIL ratio fell from 1.64 per cent in January 2024 to 1.53 per cent in October 2024, suggesting that credit risk remained in check.
“Banks have preserved sufficient provision buffers to manage credit risks effectively,” he said.
OPR: Stability and economic resilience
The overnight policy rate (OPR) remained steady at 3.00 per cent throughout 2024, a level established since May 2023.
This rate has underscored Bank Negara Malaysia’s (BNM) strategic commitment to fostering economic growth while maintaining price stability in a complex global environment.
AmInvestment Bank said net interest margin (NIM) would be pressured on expectations that the OPR would be cut by 25 basis points (bps).
It explained that every 25 bps cut in OPR would see banks’ NIMs compressed by an average of 2-3 bps, impacting net profits by 3.0 to 4.0 per cent.
RAM Rating Services Bhd said the average NIM improved by two basis points quarter-on-quarter to 2.05 per cent in 2Q24.
“Following significant compression in NIMs in 2023 due to delayed repricing of deposits from earlier policy rate hikes and heightened competition, we saw some relief in 1H24,” it said.
Banking sector outlook for 2025
Moving forward, Mohd Sedek said while challenges such as moderating loan growth and compressed NIMs persist, stable asset quality provides a cushion.
“Investors should adopt a selective strategy, prioritising banks with the potential for ROE expansion and attractive valuations,” he said.
Mohd Sedek said modest operating income growth would likely result in limited ROE expansion in the near term.
He said stronger-than-expected gross domestic product (GDP) growth could support loan growth and reduce credit risks, and improved liquidity may stabilise or even enhance NIMs.
“However, slower global growth could negatively impact loan growth and asset quality. Potential interest rate cuts could compress NIMs further.
“A deceleration in CASA (current account savings account) growth may intensify deposit competition, adding pressure on funding costs,” he said.
-- BERNAMA
