Maybank IB: Malaysia banks’ 1Q19 results ‘somber’ as net interest margins drop

Maybank branch in SingaporeMalaysian Banking, or Maybank, branch in Singapore

Malaysia’s banks posted lackluster earnings in the first quarter, with more misses than hits, as net interest margins (NIM) fell and capital markets slowed, Maybank IB Research said in a note this week.

Results from Alliance Bank, AMMB and Hong Leong Bank came in below Maybank IB’s forecasts, while Maybank’s results were below consensus projects, the note said.

Cumulative operating profit for the banks under coverage fell for the third straight quarter, down 4 percent on-year in the January-to-March period, the note said.

“While the disappointment stemmed mainly from lower investment income, which tends to be a volatile component anyway, there have been other challenges,” Maybank IB said, pointing to slower loan growth, NIM compression and rising overhead.

The 25 basis point rate hike in January 2018 had boosted NIMs, but that gain was eroded by deposit competition, the note said.

“Amid sluggish CASA [current account savings account] growth, banks have found it extremely difficult to manage NIMs, which compressed significantly in the first quarter of 2019,” the note said.

NIMs for the seven banks under coverage — Maybank, CIMB, Public Bank, AMMB, HL Bank, RHB and Alliance — averaged 2.21 percent in the quarter, down 10 basis points on-year, the note said.

Fee income also fell on-year for a fourth straight quarter, down 8 percent on-year, it said, attributing the decline to lower capital market activity, such as stockbroking and underwriting.

Cumulative gross loan growth for the seven banks rose 5.6 percent on-year in the first quarter, but was up only 0.8 percent on-quarter, the note said.

Looking ahead, Maybank IB noted April industry loan growth moderated to 4.5 percent on-year from 4.9 percent growth in March. It lowered its industry loan growth forecast for the full year to 4.7 percent from 5.1 percent.

In addition, it trimmed its 2019 core net profit growth forecast for the sector to 3.6 percent from 6.3 percent previously.

It kept a Neutral call on the sector, with Buy calls on RHB, BIMB and Alliance Bank.

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