Malaysian banks earnings slipped 0.5% in Q1

The sector’s pre-provision operating profit is at its lowest since Q1 2017.

Sector earnings from Malaysian banks dipped 0.5% YoY in Q1 whilst pre-provision operating profit decreased 3.9% YoY no thanks to the sluggish non-interest income trends and continued NIM compression, according to a report by UOB Kay Hian (UOBKH).

On a QoQ comparison, despite Q4 2018’s relatively low earnings base, sector Q1 2019’s pre-provision operating profit continued to slip further by 1.5% QoQ. Continued NIM slippage (-5bp QoQ) and weak fee income trends (-4.6% QoQ) resulted in Q1 2019 aggregate sector pre-provision operating profit being at its lowest since 1Q17.

UOBKH also noted that apart from Maybank which experienced a 16.7% QoQ spike in gross impaired loans (GIL) due to lumpy GIL loans from Singapore and Indonesia, all other banks reported flattish growth or QoQ improvements in GIL trends in Q1 2019. Meanwhile, net credit costs normalised upwards from 9bp in Q4 2018 to 18bp in 1Q19 as Maybank’s net credit cost had sharply normalised upwards from 8bp to 47bp on lower write-backs and additional provision top-up for its exposure to Singapore’s embattled water firm Hyflux.

“Given the more intense margin pressure faced by banks, coupled with the benign loans and fee income growth, banks will continue to focus on cost discipline to sustain a positive operating JAW,” UOBKH anaylst Keith Wee Teck Keong said in a report.