KUALA LUMPUR: Malaysian banks are projected to post a strong core net profit (CNP) growth of 17.8% in 2023 due to the non-recurrence of Cukai Makmur and strong non-interest income growth, said CGS-CIMB Securities Sdn Bhd.
In a note, CGS-CIMB said a big earnings catalyst for banks in 2023 would be the projected growth of 13.9% in non-interest income versus a decline of 1.5% in 2022, arising from the normalisation of investment income.
“We envisage two challenges for banks in the first quarter of 2023, namely, potential quarter-on-quarter compression in net interest margin (NIM) due to the upward repricing of fixed deposit rates and high growth (around 10% year-on-year) in overheads,” it said.
CGS-CIMB noted that 2022 was not a blissful year for banks as they faced higher tax rates with Cukai Makmur (prosperity tax).
The research firm estimated that the prosperity tax has lowered banks’ 2022 CNP by 7% and incurred marked-to-market losses for their fixed-income security holdings due to the increase in bond yields.
“Previously, this caused us to worry about the risk of banks’ CNP growth slipping into negative territory in 2022. However, banks managed to turn in a 4.4% CNP growth in 2022, which was even higher than our projected rate of 2.8%.
“This was aided by a 9.1% increase in net interest income, arising from the expansion in NIM following the hikes in the overnight policy rate and a 33.5% fall in loan loss provisioning,” it said.
As such, CGS-CIMB stayed ‘overweight’ on banks on higher non-interest income growth in 2023 and potential writeback in management overlay.
“In our view, the collapse of Silicon Valley Bank would have minimal impact on the earnings of Malaysian banks due to their negligible exposure to the US.
“Hence, the recent sell-down of banking stocks would represent buying opportunities. Our sector’s top picks are RHB Bank, Hong Leong Bank and Public Bank,“ it said. – Bernama