Hope for Malaysian banks in 2021 after ‘washout' 2020: analyst

Bank earnings are likely to rebound 7.9% YoY in aggregate net profit.

2021 looks to be a good year for Malaysian banks after a “washout year” that is 2020, with expected recoveries in core operating/net profit and return on equity, according to a Maybank Kim Eng report.

As the Malaysian economy is forecasted to rebound 4% in 2021, bank earnings are likely to follow suit with a forecasted 5.7% YoY growth in aggregate operating profit and a 7.9% YoY recovery for aggregate net profit, analyst Desmond Ch’ng wrote.

Return on equity is expected to average 8.1% in 2021 compared to 7.7% this year.

Primary troubles for banks this year include a 12% contraction in core net profit due to surges in credit costs despite an 8% increase in cumulative Q1 core operating profit seen in banks which reported their results. Lenders also displayed subdued loan growth and net interest margin (NIM) compression due to OPR cuts, the report said.

Maybank Kim Eng sees a 5% contraction in operating profit and a 20% decline in aggregate net profit for banks this year. In addition, credit costs are expected to double to 57bps from 29bps in 2019.

On the other hand, they is quite a silver lining as bond yields have continued to decline and lenders such as Maybank, RHB, and AMMB have fair value through other comprehensive income (FVOCI) reserves from unrealised investment gains that could provide support to earnings in case banks choose to realise the gains.