M'SIAN BANKING SECTOR EXPECTED TO STAY POSITIVE NEXT YEAR

By Mahanum Abdul Aziz

KUALA LUMPUR, Dec 24 (Bernama) -- The Malaysian banking sector is expected
to remain positive next year in line with better economic backdrop.

Most banks are expected to continue to register healthy sequential earnings
growth, driven by positive loans growth, improvement in credit quality and
robust capital market activities.

Higher fund raising in the capital market particularly for entry-point
projects (EPPs) outlined in the Economic Transformation Programme (ETP) will
expand the non-interests income of the banks.

"The banking sector in the country is in a strong, healthy position with
strong deposit growth and ample liquidity," RAM Holdings Bhd's Group Chief
Economist Dr Yeah Kim Leng told Bernama recently.

He expects the banks in the country to be able to sustain profitability next
year as their interest margin remains high.

Meanwhile, OSK Research believed that loan growth dynamics over the
foreseeable future remained promising on the back of a robust economic
envi ronment, ample liquidity, low interest rate and asset reflation.

The research firm has forecast loans growth of 9.5 per cent next year.

"Our loans growth assumption for 2011 implies a 1.63 times multiple to our
forecast growth domestic product (GDP) growth of 5.8 per cent in 2011, which we
think is achievable as it still falls within the lower end of the past five-year
historical range of 1.20 times to 2.0 times GDP growth, and significantly lower
than the pre-financial crisis average of 3.0 times to 4.0 times GDP growth," it
said.

Another research firm, MIDF Research sees a loan growth rate of 9-10 per
cent next year.

The research firm said the banks would be focussing on viable sectors for
small and medium enterprise (SME) loans and on larger corporate loans linked to
government projects, particularly for EPP outlined in the ETP and 10th Malaysia
Plan.

"We remain positive on the banking sector and our stocks picks are Maybank,
AMMB and RHB Capital," it said.

On the interest rate, OSK Research believed Bank Negara Malaysia may resume
the process of overnight policy rate (OPR) normalising from second quarter 2011
onwards and potentially raising OPR by another 75 basis points to 3.5 per cent.

"Given the robust economic outlook, ample liquidity and still near record
low interest amid an asset reflationary environment, we think that further rate
hikes or normalisation is still positive for banks at current levels as it will
temporarily lift margins as asset re-price faster than liabilities," it said.

For 2010, the Malaysian banking industry performed well despite
uncertainties in the global market.

Most research firms are maintaining their overweight recommendations on the
banking-related stocks due to robust sequential earnings growth.
-- BERNAMA


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