KUALA LUMPUR, Dec 15 — CGS-CIMB has reiterated its ‘overweight’ call on banks supported by its projection of stronger core net profit (CNP) growth in 2023, which would accelerate to 20.8 per cent due to the non-recurrence of the prosperity tax or cukai makmur (CM) taxation.
The research house has also forecast strong topline growth in 2023, with the projected expansion of 10.3 per cent in net interest income and 7.2 per cent in non-interest income.
In a research note today, CGS-CIMB said banks staged a strong recovery in the sector’s CNP growth from 1.9 per cent year-on-year (y-o-y) in the second quarter of the financial year 2022 (Q2 FY2022) to a sterling 9.2 per cent y-o-y in the third quarter of 2022 (Q3 FY2022).
The earnings catalysts in Q3 FY2022 were a 12.4 per cent y-o-y increase in net interest income, on the back of robust loan growth and expansion in net interest margin following the hikes in overnight policy rate (OPR), a 16 per cent y-o-y rise in non-interest income, mainly due to higher net insurance income for Maybank, and a 19.6 per cent y-o-y decline in loan loss provisioning, it said.
CGS-CIMB said it estimates a CNP of RM7.2 billion to RM7.4 billion for banks in the fourth quarter of 2022 (Q4 FY2022), representing a quarter-on-quarter (q-o-q) decline of one to four per cent.
“The potential drags on Q4 FY2022 earnings would be flattish or even lower q-o-q net interest income due to the increase in the cost of funds from the upward repricing of fixed deposits and a pickup in deposit competition, and around three per cent q-o-q rise in Q4 FY2022 overheads lifted by inflationary pressures and salary increment for unionised staff.
“However, CNP y-o-y growth should remain strong at eight to 11 per cent in Q4 FY2022,” it said.
CGS-CIMB also highlighted it was previously concerned about banks’ earnings growth falling into negative territory in 2022 due to the CM taxation, potentially reducing banks’ net profit by circa eight per cent in the financial year.
“However, judging from the financial performance in Q3 FY2022 and the expected y-o-y CNP growth in Q4 FY2022, we believed that our projected CNP growth of 2.8 per cent for banks in FY2022 would be achievable.
“The key drivers would be the 8.2 per cent increase in net interest income lifted by the OPR hikes and 13.6 per cent y-o-y drop in loan loss provisioning,” it added.
— Bernama
