Banks - 3Q14 review: rate hike gets lost in translation
Recommendation: Under Weight
Investors had high hopes that the rate hike will rejuvenate banks’ 3Q14 margins and ultimately earnings but the 3Q14 results have disappointed again. Banks’ core net profit even fell 2.2% in 3Q14, underperforming our expectations by 5.6%. The three consecutive quarters of weak earnings underline our negative views on the sector. So, we continue to rate Malaysian banks as Underweight given the earnings risks of (1) margin contractions, (2) upturn in credit costs, and (3) unattractive valuations. Maybank is our top pick.
The three consecutive quarters of weak earnings underline our negative views on the sector. So, we continue to rate Malaysian banks as Underweight given the earnings risks of (1) margin contractions, (2) upturn in credit costs, and (3) unattractive valuations. Maybank is our top pick.
A 2% drop in net profit
Despite the positive impact of the rate hike, the banks’ net profit fell 2% yoy in 3Q14, impacted by an 8.2% yoy drop in non-interest income. The margin contraction also limited the expansion in net interest income to only 5% yoy in 3Q14. On a positive note, 3Q14 overheads rose by only 2.7% yoy while loan loss provisioning fell by 1.1% yoy.
Weak net profit growth in 2014
We are projecting a net profit growth of 6.8% for Malaysian banks in 2014, supported by increases of 5.7% in net interest income and 11.6% in non-interest income. If we exclude several non-recurring boosters in 2014, net earnings growth will be even be weaker at only 3.7%.
A slight slowdown in loan growth
The industry’s loan growth eased marginally from 9.3% yoy in Jun 14 to 9% yoy in Sep 14. By segment, consumer loan momentum eased from 11.5% yoy in Jun 14 to 10.7% yoy in Sep 14 but business loan growth picked up slightly from 6.5% yoy to 6.7% yoy in the same period.
Stable asset quality
Banks’ asset quality did not deteriorate under the heat of higher inflation. The industry’s impaired loan ratios stayed at 1.3% net and 1.8% gross in Jun-Sep 14. Although loss coverage slid from 105% in Jun 14, it remained strong at 102.2% in Sep 14.
Source: CIMB Daybreak - 09 December 2014
Recommendation: Under Weight
Investors had high hopes that the rate hike will rejuvenate banks’ 3Q14 margins and ultimately earnings but the 3Q14 results have disappointed again. Banks’ core net profit even fell 2.2% in 3Q14, underperforming our expectations by 5.6%. The three consecutive quarters of weak earnings underline our negative views on the sector. So, we continue to rate Malaysian banks as Underweight given the earnings risks of (1) margin contractions, (2) upturn in credit costs, and (3) unattractive valuations. Maybank is our top pick.
The three consecutive quarters of weak earnings underline our negative views on the sector. So, we continue to rate Malaysian banks as Underweight given the earnings risks of (1) margin contractions, (2) upturn in credit costs, and (3) unattractive valuations. Maybank is our top pick.
A 2% drop in net profit
Despite the positive impact of the rate hike, the banks’ net profit fell 2% yoy in 3Q14, impacted by an 8.2% yoy drop in non-interest income. The margin contraction also limited the expansion in net interest income to only 5% yoy in 3Q14. On a positive note, 3Q14 overheads rose by only 2.7% yoy while loan loss provisioning fell by 1.1% yoy.
Weak net profit growth in 2014
We are projecting a net profit growth of 6.8% for Malaysian banks in 2014, supported by increases of 5.7% in net interest income and 11.6% in non-interest income. If we exclude several non-recurring boosters in 2014, net earnings growth will be even be weaker at only 3.7%.
A slight slowdown in loan growth
The industry’s loan growth eased marginally from 9.3% yoy in Jun 14 to 9% yoy in Sep 14. By segment, consumer loan momentum eased from 11.5% yoy in Jun 14 to 10.7% yoy in Sep 14 but business loan growth picked up slightly from 6.5% yoy to 6.7% yoy in the same period.
Stable asset quality
Banks’ asset quality did not deteriorate under the heat of higher inflation. The industry’s impaired loan ratios stayed at 1.3% net and 1.8% gross in Jun-Sep 14. Although loss coverage slid from 105% in Jun 14, it remained strong at 102.2% in Sep 14.
Source: CIMB Daybreak - 09 December 2014
