Banks Expected To Stay Resilient In 2023, Core Net Profit To Rebound 16%

Analysts at Maybank IB project core net profit growth for the banking sector to be at around 16% in 2023, with upside potential should credit costs continue to surprise positively against their elevated assumptions. Accordingly, the analysts say banks have more than sufficient provision buffers, in their view, to weather slower economic growth next year, and valuations are still decent. While remaining positive on the sector, Maybank IB places a buy call on CIMB, AMMB, ABMB, HLBK, and RHB.

The 3Q22 bank results were either within or above expectations. 3Q22 cumulative core operating profit rose a strong 15% YoY amid strong loan growth, NIM expansion and positive JAWs. Credit costs continued to trend lower and cumulative core net profit grew at a commendable pace of 15% YoY in 3Q22. 9M22 cumulative core net profit rose 6% YoY.

Subsequently, they have raised the aggregate 2022 operating profit growth projection to 7.7% from 4.2%, driven by faster loan growth, greater NIM expansion, and more stable NOII. Core net profit growth is raised to 6.2% from 3.3% as a result. Maybank IB has also trimmed it’s 2023 operating profit growth projection to 3.7% from 5.5%, on slower loan growth of 4.8% (6.2% in 2022), NIM compression of 2bps (+7bps in 2022), stable NOII and 5% expense growth. In the absence of Cukai Makmur and lower credit costs, the Bank expects the 2023 cumulative core net profit to rebound 16%.

Loans under Repayment Assistance for the banks in coverage have since fallen to just about MYR62b (3% of total loans) by Oct 2022, from MYR440b (25%) in Oct/Nov 2021. Positively, banks have continued to hold on to their pre-emptive provisions, which have declined just 14% to about MYR8.5b currently from MYR9.9b end-2021. Based on stress test, this
would provide cover of 150-437% if assuming a 20% default rate on RA loans.

These provisions, it said should comfortably buffer against stresses from slower economic growth in 2023. Credit cost assumptions is kept elevated at 38bps in 2022E and 34bps in 2023E, against a pre-COVID average of 28bps from FY17-FY19.

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