• 4Q23 sector PBT could be muted QoQ, due to NIM pressure, higher opex and credit cost, with markets-related non-II being a swing factor. CIMB’s results may be slightly ahead of our estimates on higher- and lower-than expected non-II and credit cost QoQ (RHB FY23F PATMI is 4% below the Street estimate) but Affin’s numbers may miss projections on NIM pressure. What is more pertinent is the outlook – positive guides on ROEs and capital management initiatives are likely to be well-rewarded by investors.

• System Dec 2023 statistics offered some positive read-throughs. These include: i) A pick-up in 4Q23 loan growth (+2.2% QoQ, +5.3% YoY) as business loans gathered pace while, in the household segment, auto loans had a strong 4Q; ii) system asset quality improved with GIL ticking down 2% QoQ; and iii) healthy deposit (+2.2% QoQ/+5.6% YoY) and especially, CASA (+3.5% QoQ, +3.7% YoY) growth. We see these trends filtering through the upcoming results and set out some key expectations below.

• Sector 4Q23 earnings – trading- and FX-dependent. We think 4Q sector NII could be flattish, with the expansion in the loan base offset by NIM pressure due to the seasonal competition for deposits and, possibly, from the lagged impact of May’s Overnight Policy Rate increase. While some banks offered deposit rates of >4%, this does not appear to have been a widespread practice and the banks we spoke to expect an easing in competitive pressure in 1Q24. On non-II, fees could stay healthy on strong loan- and card-related fees, but market-related (ie trading and investment)and FX income may be lumpy and harder to forecast. The 10-year Malaysian Government Securities yield contracted by 24bps QoQ, which should be positive for trading activities – even though some banks may be inclined to rebuild their bond portfolios and/or hold on to the higher yields.

• Expect higher opex and loan provisions QoQ. We think the sector is likely to report higher opex and loan impairments QoQ – a reflection of seasonality (opex) and base effect (credit cost). Larger banks such as CIMB and Malayan Banking reported lower credit cost in 3Q due to writebacks and model changes, among others, which may not recur this quarter. Also, there could be provision top-ups to lift coverage (eg CIMB, AMMB). Generally, we do not expect adverse developments on asset quality but would be keen to hear more on the SME segment. Hence, sector PBT could be muted QoQ but PATMI trend could be boosted by AMMB, depending on the extent it utilises its tax credits

• Dividends. Maybank’s DPS could surprise on the upside as we and the Street assumed a full-year payout ratio of 78% vs the >80% trend in recent years. CIMB’s DPS may also beat our forecast if earnings are better than estimated.

• What’s next? With several banks approaching the tail-end of their mid-term plans, we think investors would be keen to hear more on what would be next, in the upcoming and future briefings ahead. We see investors ending up with a spread of choices – banks that will be investing for growth, banks in a steady state, banks with room to further optimise their capital and balance sheets, and banks that could offer a combination of the above.

Source: RHB Securities Research - 20 Feb 2024