KUALA LUMPUR, Feb 16 ― Maybank Investment Bank (Maybank IB) has upgraded its call on the Malaysian banking sector to "positive” from "neutral” on the back of economic recovery prospects this year and the improved outlook for banks.

In a research note today, Maybank IB said the economy is poised for recovery as the number of active Covid-19 cases start to decline and as the movement control order (MCO) is further relaxed, thus it projects a gross domestic product (GDP) growth of 5.1 per cent this year.

It noted that against this backdrop, there are various positives for the banking sector, including faster loan growth; net interest margin expansion (in the absence of further rate cuts); unrealised investment gains reserves that could still provide buffer to earnings; and strong capital positions that could lend to the restoration of dividend payout ratios.

"We project slower aggregate operating profit growth of 1.3 per cent this year versus three per cent in 2020 on account of lower investment income, buffered by faster loan growth, net interest margin expansion and controlled overheads.

"Our aggregate core net profit for 2021 is, however, forecast to accelerate 19 per cent year-on-year ―versus a 21 per cent contraction in 2020 ― as credit costs taper off.

"As a result, we expect the return on equity (ROE) for banks in our coverage to average a higher 8.6 per cent in 2021 versus 7.6 per cent in 2020; improving to an average of 9.2 per cent in 2022,” Maybank IB said.

It highlighted that the economic recovery theme bodes well for the banking sector in that it allows for resumption of loan growth, but more importantly, lower provision levels.

Meanwhile, it forecasted the banking system loan growth to pick up pace to 3.8 per cent in 2021 versus 3.4 per cent in 2020 amidst stable household loan growth and a pick-up in corporate lending as economic activity increases.

Maybank IB also opined that loan growth could be stronger, if not for the blanket loan moratorium from April to September 2020, which resulted in lower loan repayments during the period and which have since resumed.

This year, the investment bank believes that there will be no further rate cuts with the resumption of economic growth, as Bank Negara Malaysia is confident that the 125 basis point Overnight Policy Rate cut last year will continue to stimulate the economy and as such, will likely pause it to allow the rate cuts to filter through the economy.

It said Malaysian banks have entered into the Covid-19 crisis from a position of strength, whereby capital positions have been prudently built up over the years and are now comfortably above 13 per cent for all banks,  while CIMB is just marginally below at 12.9 per cent.

"This strong capital position has enabled the banks to weather well through the present storm,” it added. ― Bernama