Can We Still Buy Banking Stocks?

The anlaysts are saying that the banking sector will furnish a slate of good H2 results.

So are the banking stocks fairly priced or can we still get in and make some good money?

As to be expected, Malaysian banks turned in solid report cards in the second quarter, pointing to full year that could possibly  see record earnings for the industry as loans continue growing and provisions fall.

Analysts believe earnings, which probably came in at the highest ever for the April-to-June period, will continue to grow on a quarter-to-quarter basis this year.

Earnings will continue to be on an uptrend in the next two quarters on the back of loan expansion, especially on the retail side, and better fee-based income, said banking analyst Wong Chew Hann of Maybank Investment Bank Research.

"It should be another year of record earnings," she remarked.


The bellwether top banker Nazir Razak of CIMB concurred.

"This is most likely to be a record year underpinned by continuing loan expansion and as capital markets continue to be active," he said. CIMB is the second largest lender.

The industry's loan growth has so far had been better than expected, coming in at 12.5 per cent as at end June from a year ago.


Some analysts are now looking to raise their loan growth forecasts for the year. Wong plans to raise hers to around 12 per cent compared to about 10 per cent before.

The industry seems to be in good health in terms of asset quality and banks also appear to have much better control over costs, analysts noted.

The only concern they had for the industry was the recent creeping in of much stiffer competition in the mortgage and hire-purchase loan segments, as well as in customer deposits, which could hurt margins.

Even foreign banks have been in the action, going all out to grab higher market shares in those areas by offering attractive rates and innovative packages.

"That puts pressure on margins but the OPR (overnight policy rate) hikes earlier may help cushion the pressure somewhat," said David Chong, an analyst at RHB Research Institute.

On the whole, banks' second quarter earnings were either in line with analysts' expectations, or slightly better than expected.

Analysts cited top lender Malayan Banking Bhd (Maybank) as having the best results as well as the best dividends of the nine local banking groups.

An analyst from a foreign research house felt that Alliance Financial Group Bhd, the smallest banking group, was the most disappointing in terms of loan and deposit growth.

Banks like Maybank and CIMB saw earnings from their overseas operations, especially Indonesia, come in strongly for the quarter.