What to Expect from the Upcoming Earnings of Malaysia Bank Giants?

1) Q3 GDP Slows, Meets Expectations: A GDP growth of 5.3% for Q3 2024, slightly down from 5.9% in the previous quarter, impacted by a decline in oil and gas production but buoyed by robust investment activities and consumer spending. The central bank projects GDP growth for 2025 to be between 4.8% and 5.3%.

2) Central Bank Holds Interest Rate Steady currently: The central bank has maintained the Overnight Policy Rate (OPR) at 3%, unchanged since a 25 bp increase in May 2023, attributing the steady rate to solid economic growth and subdued inflation.

iFAST analysts anticipate a favorable earnings season for banks, supported by stable Net Interest Margins (NIM), the OPR, and bond yields. Despite recent pressures, the sector is seen as fundamentally attractive in the long term, buoyed by dovish signals from the U.S. Federal Reserve in August.

CGS-CIMB forecasts quarterly earnings growth of 8% to 9% for banks, driven by significant reductions in Loan Loss Provisions (LLP). The firm reaffirms a "buy" rating on banks, citing potential rerating catalysts such as improved net interest margins, ongoing provisioning reversals, and higher dividend payout ratios.

S&P predicts that Malaysian banks' earnings will remain "rangebound" in 2025. Intense competition for loans and deposits could narrow the net interest margin by three to five basis points, with Return on Assets (ROA) expected to hover around 1.2%-1.3%, suggesting limited upside potential.

AmInvestment Bank Research anticipates pressures on bank margins in 2025 due to a projected economic slowdown, which could lead to lower OPR in the second half of the year, affecting NIM and loan demand. The firm maintains a "neutral" rating on the sector, noting limited room for further ROE improvement due to high valuations.

AmInvestment also forecasts a deceleration in loan growth, attributing potential weaknesses to increased service taxes, fluctuating diesel prices, and rationalization of RON95 petrol subsidies in the latter half of 2025, all of which could dampen non-essential retail spending and thus slow loan growth to 4%-5% in 2025 (from 5%-6% in 2024).