Malaysian bank earnings growth to slow to 1% as loans falter

Loans continued to trend downwards in June, falling 4.2%.

Malaysia's banking sector is expected to post muted profit growth of 1% in 2019 and 3.8% by 2020 as lending activities continued to remain muted, according to UOB Kay Hian. 

Loan growth continued to cool after contracting by 4.2% in June, weighing on the growth of net interest income for the industry in general. In particular, working capital, non-residential property and auto loans experienced continued slowdown.

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Loans approval and applications also shrunk 3.3% and 11.7% respectively in June. "As loans approval growth trend remains modest (ie low-single-digit to flattish as at 1H19), we believe that full-year system loans growth is likely to come in at a lower 4.5-5.0% range. The positive impact from the revival of a number of mega infrastructure projects is only likely to flow through in 2020 onwards, in our view," analyst Keith Wee Teck Keong said in a report. 

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The weak earnings growth is also a result of impact of a 25bp OPR cut on NIM and mid- to low-single-digit non-interest income growth amidst overall weakness in fee income.

Of its peers, Keong expects BIMB to deliver the strongest earnings growth trajectory at 13.6% yoy, amidst strong Takaful income growth and robust loans growth. "We expect AMMB (-5.8% yoy), Public Bank (+1.1% yoy) and Maybank (-3.4% yoy) to deliver belowsector earnings growth on the back of a sharp upward normalisation in credit cost for the likes of AMMB and Maybank and negative operating JAW in Public Bank’s case," Keong added.