KUALA LUMPUR: RHB research is maintaining a neutral call on the banking sector amid moderating earnings growth prospects.
The sector's profits slipped recently, which was somewhat expected, according to the research.
Despite this, RHB found that there is still a strong demand for loans, and that the quality of assets remains steady with solid safety nets in place.
"We're seeing banks feeling positive about loan demand, especially for retail mortgages, small and medium-sized businesses (SMEs), and infrastructure projects," the report stated.
It said a healthy loan demand and stable asset quality with sound buffers are positives.
"We note optimism from banks on loan demand, supported by retail mortgages, small and medium sized enterprises (SMEs), and the rollout of infrastructure projects.
"But funding for growth could see deposit competition escalate, as well as a more conservative stance on dividend payouts," it said in a note today.
Asset quality appears benign, with no major stress areas noted—further supported by some banks having taken the opportunity to further strengthen provision buffers last year and holding on to the overlays.
"From the briefings, it appears that banks are in no rush to write back these overlays."
RHB's top picks are CIMB Bank Bhd, AMMB Holdings Bhd, Hong Leong Bank Bhd and Alliance Bank Malaysia Bhd.
On the flip side, net interest margin guidance was mixed. There has been some yield pressure in segments such as mortgages and SMEs, and strong credit growth may lead to a pickup in deposit competition, said RHB.
"Also, operating expenses may be sticky due to inflation and currency effects, as well as ongoing digital and technology investments," it added.