Nomura cautious about Malaysian banks

by **Cals** Wed 20 Jan 2016, 08:54

Nomura cautious about Malaysian banks

By The Edge Financial Daily / The Edge Financial Daily | January 19, 2016 : 10:14 AM MYT

This article first appeared in The Edge Financial Daily, on January 19, 2016.

KUALA LUMPUR: Asean banks will likely continue to face slower loan growth and higher credit costs in 2016, Nomura’s equity research said, but is of the view that attractive valuations together with a favourable change in the direction of interest rates could lead to stronger share performance for Indonesia and Singapore banks.

However, the research firm is cautious about Malaysia banks as it believes that they will likely continue to face net interest margin (NIM) compression and high credit costs.

“We are neutral on Malaysia banks despite their strong balance sheets and attractive valuations because we are concerned about their weak top-line growth, due to slower loan growth and narrower NIMs,” it said in a report dated Jan 15, which was released yesterday.

“We think [Malaysia banks’] earnings in 2016 would be constrained by a combination of lower loan growth, NIM compression and high provisioning. We think NIMs will likely continue to be under pressure as the banks chase deposits in order to defend their positions under the liquidity coverage ratio requirements.

“We think this is a multi-year theme,” it added.

Nomura noted that the slowdown in the country’s gross domestic product growth leads to lower loan growth of 6% to 7% in the near term.

“The lower loan growth and narrower NIMs should result in only mid single-digit earnings growth in 2016F, which we think is unlikely to excite the market,” it said.

Nomura’s top pick among Malaysian stocks is [size=16]Malayan Banking Bhd (Maybank) ([You must be registered and logged in to see this image.] Valuation: 3.00, Fundamental: 1.50) as it believes that its formidable current account and savings account deposit franchise together with a diversified asset base augurs well in the current environment.

“Our least preferred is CIMB Group Holdings Bhd ([You must be registered and logged in to see this image.] Valuation: 1.65, Fundamental: 0.55) because we think its Indonesian exposure could keep its provisioning high for some time, and its lower capital ratios could limit dividend payouts,” it said.

Maybank shares closed down 3 sen or 0.36% at RM8.29 yesterday, bringing a market capitalisation of RM81.02 billion, while CIMB shares ended the day 2 sen or 0.5% lower to RM3.99 with a market capitalisation of RM34.02 billion.
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