Moderating growth, cautious sentiment pose downside risks to banks

KUALA LUMPUR: Affin Hwang Capital research expects moderating economic growth and more cautious business/consumer sentiment to be two key factors posing downside risks to its 2019E-20E earnings forecasts on the banking sector.

Downside risks to its earnings forecasts include the possibility of another 25bps interest rate cut which would reduce sector earnings by an aggregate of 1.7%.

It added that a 1% decline in loan growth could result in a 1.1% decline in sector net profit while a 10bps increase in net credit cost could result in a 6.3% to 6.4% decrese in net profit.

The commercial/residential property sector could also pose some risks to the system, though impaired loans remain minimal to total loans, said Affin Hwang.

However, it noted the the strong fundamentals of the Malaysian banking sector as reflected by high capital adequacy, ample domestic liquidity, stable funding and robust household financial buffers against household debt.

The research house maintained its neutral call on the sector while noting that it remained selective on its counters.

It has a buy call on RHB Bank for banking exposure with a target price of RM6.60 on the stock.

For non-banking stocks, it likes Aeon Credit with a target price of RM19.80 and ELK-Desa with a target price of RM1.98 due to higher receivables growth and attractive ROEs.

Source: TheStar