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Categories
| CIMB Research: Banks to outperform foreign ones |
| Business & Market 2009 | |||
| Written by Financial Daily | |||
| Monday, 15 June 2009 11:16 | |||
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“We take heart in the outperformance of the local banks during these difficult times as it suggests that the improvements in local banks’ operations, especially in the area of risk management, have helped them to weather the economic downturn. On this note, we are maintaining our neutral stance on Malaysian banks. Our top pick for the sector remains Public Bank,” it said. “In 1Q2009, local banks outperformed their foreign peers in the areas of net profit — 14.2% year-on-year (y-o-y) drop vs 19.7% for foreign banks, non-interest income — down 7.1% y-o-y vs 25.3% for foreign banks despite their higher exposure to poor investment banking income, and NPL ratios — a few local banks (ie Maybank, Public Bank, AMMB and Alliance) managed to contain their NPL ratios while quarter-on-quarter (q-o-q) rises were evident for all the major foreign banks,” it added. CIMB Research said foreign banks’ loan growth was trailing those of local banks. “As expected, foreign banks recorded slower net  loan growth of 3.1% y-o-y in March 2009 compared with 12% for local banks’ domestic lending. The performance of foreign banks was pulled down by a 6.8% contraction in Citibank’s loan base, due primarily to a drop in property and business loans. Other major foreign banks registered single-digit loan growth ranging from 3.3% (for UOB) to 8.7% (for OCBC),” it added.It noted that the combined net profit of the five major foreign banks in Malaysia fell 19.7% y-o-y to RM824.6 million in 1Q09, worse than the 14% slide recorded by the local banks. CIMB Research added that the better performance came from Singapore’s banks. “Among the major foreign banks, only UOB and OCBC bucked the downtrend by racking up net earnings growth of 12% to 13% y-o-y. Their 1Q earnings were primarily supported by stronger investment and foreign exchange income, which more than offset a jump in loan-loss provisioning (LLP). In contrast, the other three foreign banks recorded net profit declines ranging from 18.6% (for Citibank) to 52% y-o-y (for StanChart), dragged down by lower non-interest income,” it said. The local research house also said that the foreign banks saw higher NPL ratios and credit costs. “Against the backdrop of a grim economic climate in 1Q09, all major foreign banks saw a rise in their net NPL ratios. The blended net NPL ratio of these five banks increased from 1.68% in December 2008 to 1.81% in March 2009, lower than the industry’s 2.2%. The hike in NPL ratios led to a 23% y-o-y surge in 1Q09 LLP,” it noted. This article appeared in The Edge Financial Daily, June 15, 2009.
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