Banks project steady earnings amid hurdles

PETALING JAYA: With net interest margin (NIM) compression an ongoing concern in the local banking sector, MBSB Research expects banks to intensify focus on its preservation primarily via a liability-led strategy.

The research house noted for most this would likely involve releasing pricier deposits given that industry liquidity coverage ratios remain comfortably high.

“Some banks have the means to grow cheaper Casa (current account savings account) balances more easily than others,” it stated.

“Affin Bank Bhd, AMMB Holdings Bhd and RHB Bank Bhd hold advantages on this front due to the effectiveness of their liability management initiatives and superior ability to grow cheaper Casa.”

In contrast, it was wary of Bank Islam Malaysia Bhd and Public Bank Bhd’s performance.

There is still some space left for loan-to-deposit ratio optimisation, and the stronger loan growth anticipated in the second half of financial year 2025 will support this.

“While the optimisation of loan/deposit (L/D) ratios is still applicable, some banks’ current L/D ratios are already close to their optimal levels. This happens mainly in banks where year-to-date (y-t-d) loan growth is outstripping y-t-d deposit growth.

For the most part, loan growth is largely expected to come from the corporate side, with several banks expressing confidence in its pipeline,” the research house noted.

Unfortunately, the loan-to-fund and equity ratio, which is a superior liquidity measure than the L/D ratio, is, however, not publicly available for most banks, it stated in its banking sector report.