Neutral Stance On Banking Sector Even As Earnings Moderate -- AmInvestment Bank

KUALA LUMPUR, April 24 (Bernama) -- AmInvestment Bank Bhd has maintained a neutral view on the banking sector, expecting earnings to moderate due to lower net interest margin (NIM), investment and trading challenges, and potential credit cost increases.

“Our forecasts for financial year (FY) 2025/FY2026 already accounted for a three to four basis points (bps) reduction in NIM, which translates into a two per cent to three per cent impact on net profits,” the investment bank said in a research note today.

“Ongoing trade uncertainties are expected to dampen consumer and business sentiment. Given China's role as a key trading partner for Malaysia, the high tariffs imposed on China by the US could indirectly affect Malaysia’s trade figures,” it added.

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Given this, AmInvestment said banks may need to increase provisions if a prolonged US-China trade war leads to adjustments in macroeconomic event valuation (MEV) assumptions.

Such reversals are happening in Malaysia, Indonesia and Singapore, given a prolonged US-China feud.

“Raising provisions could become necessary, leading to higher credit costs and affecting banks' earnings,” the investment bank said.

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The 10-year US Treasury yield remains at over 4.3 per cent, while bond selloffs pose little risk currently, but geopolitical issues and US-China trade tensions could push yields higher.

Higher borrowing costs and greater rollover risks for US bonds could lead to a more significant economic impact and heightened investor concerns.

Nonetheless, credit costs are unlikely to hit global financial crisis (GFC) levels of 55 bps to 70 bps, as the slowdown is tariff-driven with room for negotiations, the note said.

The investment also said domestic-focused banks, RHB Bank (Target price: RM7.58) and Hong Leong Bank (TP: RM26.40) are preferred BUYS due to their lower international exposure.

“Regional banks like CIMB (TP: RM8.10) offer potential opportunities once trade tensions ease.

-- BERNAMA