Malaysian banks' 2018 net profit growth slows to 7.2%

This is compared to a stronger 13.0% in 2017.

As Malaysian banks' provisions gradually normalise upwards, UOB Kay Hian reports a slower 2018 net profit growth of 7.2% versus 13.0% in 2017.

With the rise in provisions and moderating earnings growth, banks with strong asset quality traits and above-sector growth outlook should outperform.

Here's more from UOB Kay Hian:

A rate hike will have a temporary boost to net interest margin (NIM) as assets re-price faster than liabilities. Judging from most banks’ average deposit tenure, we expect the re-pricing of deposits to lag by an average of three months and with nearly 80% of the deposits to be re-priced within six months. This will result in a fairly minor enhancement in earnings on a full-year basis assuming 1-2 rounds of interest rate hike (each: 25bp) in 2018.

Assuming a positive re-pricing gap of 2-3bp and all things unchanged (ie: no intensifying deposit competition and current CASA and FD growth), our sensitivity analysis indicates that every 25bp hike in interest rate could enhance banks’ earnings by an average of 2.0%. Banks with higher domestic floating rate loan profile could experience a larger positive repricing gap (Alliance, BIMB, CIMB and RHB) while banks with high domestic CASA (Maybank, BIMB, Alliance) could also benefit.