‘Banking sector earnings to grow 11.2% this year’

PETALING JAYA: CIMB Group CEO Tengku Datuk Zafrul Tengku Abdul Aziz forecasts a net profit growth of 11.2% for the industry on average, on the back of a 6.9% rise in net interest income and 9.5% increase in non-interest income, with the industry expected to remain stable this year.
“We agree with Fitch Ratings that there are pressures on the banks’ asset quality and expect the impaired loan ratios to rise in this year but we think that the increase would not be significant,” he said in a statement yesterday.
Tengku Zafrul said asset quality would not deteriorate too much though, with a still-healthy GDP growth of 4.7% in 2015 and 4.6% in 2016; still-low unemployment rate of 3.3% projected for 2015-16; lower risk of default in the corporate loan segment with the decline in the gearing ratio for corporates; banks’ relentless efforts to improve their risk management and credit scoring systems as well as the step-up in loan monitoring and recovery processes; Bank Negara Malaysia’s preemptive measures to introduce the Responsible Lending Guidelines in 2011 (which took effect in 2012) and the tightening of lending for residential mortgages and personal loans in 2013.
Despite the slowdown in China’s economic growth impacting Malaysia’s economic growth and banking sector, CIMB believes that it has been factored into its projected GDP growth of 4.6%- 4.7% in 2015-16.
“We foresee much of Malaysia’s FY2016 investment deals to be supported by private sector outlays in the manufacturing and services sector, as well as public infrastructure-related spending,” Zafrul said.
As such, CIMB is optimistic on the Malaysian bond markets in FY2016, with this year potentially surpassing 2015 in terms of sukuk sales, as it projects RM70-75 billion of corporate bonds issuances for FY2016, out of which sukuk historically makes up about 70-80% of the annual issuances. Several infrastructure projects including roads and railways are likely to be launched this year in line with the government’s effort to sustain economic growth.
Zafrul also expects renewed interest in IPOs and raising of capital in Malaysia due to the Federal Reserve interest rate hike, especially for export-oriented companies that will benefit from a stronger US Dollar.