KUALA LUMPUR: The profit margins of banks are set to improve on the back of prudent spending measures, lower loan-loss provisions and better net interest spread, said analysts.
Online investment platform Fundsupermart.com senior research analyst Lee Tien Xiang said in 2015, various banks had initiated voluntary exit options for their staff due to the challenging economic environment.
The hefty cost had impacted banks’ profits during the year and possibly last year, he said.
“This year, we expect the negative impacts from these lay-off schemes to subside. This, along with the prudent spending measures including freezing headcounts and trimming operational costs taken over the past years, should allow the banks to be leaner,” he told NST Business recently.
Lee said local banks had also started to pare back on their loan-loss provisioning for bad debts.
During the third quarter of last year, the total aggregate loan-loss provisioning for the banks declined to RM1.08 billion, compared with RM1.55 billion in the previous quarter.
“We expect some moderation in the banks’ loan-loss provisioning given the improving environment within the oil and gas (O&G) sector as well as the expectation of a better economic prospect in Malaysia.”
Lee said in July last year, Bank Negara Malaysia cut the overnight policy rate by 25 basis points, a move that contributed positively to the net interest spread of the banks.
“When there is an adjustment of benchmark interest rate by the central bank, the banks, typically, will follow through by altering their deposit rates and base rates, with the latter being done at a lagged time compared to the former,” he said.
On non-performing loans (NPLs), Lee said the ratio had remained fairly stable around 1.2 to 1.4 per cent despite local and external headwinds over the past two years.
“This indicates the effectiveness of the banks in containing their bad debt exposure.”
He said with better domestic economic prospect, along with a better O&G environment, NPLs were likely to stay in control and banks should continue to see rather stable ratio.
On loan approvals, Lee said banks seemed to have loosened up on their lending, witnessed by the moderation in the year-on-year contractions of approvals.
“Loan approvals for property and vehicles, which make up close to 40 per cent of the banks’ overall loan portfolios, also saw moderation in the contractions of their year-on-year approval rates.
“With the banks loosening their lending, their loan portfolios are likely to expand and will allow the banks to incur more interest income.”
Maybank Investment Bank analyst Desmond Ch’ng said in his note recently loan applications contracted just marginally at 0.3 per cent year-on-year in November last year after having contracted by a hefty 14.5 per cent year-on-year in October last year.
He said on a three-month moving average basis, applications contracted 7.8 per cent year-on-year in November versus a contraction of 8.3 per cent in October.
“Loan approvals contracted 4.6 per cent year-on-year in November versus a contraction of 5.3 per cent year-on-year in October.
“On a three-month moving average basis, loan approvals contracted for the 15th consecutive month and by six per cent year-on-year in November versus 4.4 per cent in October.”
Ch’ng said the pick-up in November’s loan growth to 5.3 per cent year-on-year, which was “trending in the right direction”, was supported predominantly by stronger corporate loan disbursements, a trend that the larger banks had guided for.
“Annualised loan growth of 4.7 per cent in November still trails our loan growth forecast of 5.3 per cent but the gap has narrowed substantially and could close within expectations should the uptrend persist.
“Our industry loan growth forecast for this year is unchanged at 4.7 per cent,” he said.