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KUALA LUMPUR (Oct 20): CGS-CIMB Research has reiterated its “overweight” call on banks in Malaysia, on the expectation of a recovery in net profit growth in 2021.

It had also anticipated banks’ net profit to rebound quarter-on-quarter (q-o-q) by more than 20% in the third quarter this year (3Q20) due to the absence of modification loss and potentially lower loan loss provisioning.

In a note today, CGS-CIMB said asset quality remained as a key concern among investors.

“The main reason why investors have not increased their holdings in banks is their concern over a possible rise in gross impaired loan (GIL) ratio in the first half of 2021 following the end of the targeted loan moratorium.

“However, we think that an economic recovery in 2021, where our economist projects gross domestic product growth of 7.5%, would help to limit any increase in the GIL ratio, as this could lower the unemployment rate and improve business revenue,” it said.

The research house also took note of the banks’ exposure to the aviation sector, saying that the recent negative news on airlines’ financial positions has sparked concerns over the possibility of banks needing to provide additional provisioning for their exposures to the aviation sector.

“However, from our checks, we gathered that banks’ exposure to the aviation sector is small, at an average of less than 1% of their total loans, hence, any provisioning arising from this sector would not be significant, in our view,” it said.

CGS-CIMB said some investors appeared hopeful that Malayan Banking Bhd (Maybank), Public Bank Bhd and RHB Bank Bhd which skipped their interim dividends in 2Q20 this year would declare an interim dividend for the 3Q20 results.

“However, we think that this would be unlikely as banks would not have had the full visibility of the impact of Covid-19 on their asset quality by then to decide on the dividend payout ratio for 2020,” it added.

http://www.theedgemarkets.com/article/cgscimb-reiterates-overweight-call-banking-sector