Malaysian banks likely to grow earnings, dividends despite margin challenges

Malaysia's large banks are expected to increase earnings and dividend payouts as economic growth continues apace and net interest margins stabilize after falling in 2023.

Malayan Banking Bhd. (Maybank), Public Bank Bhd., CIMB Group Holdings Bhd., RHB Bank Bhd. and Hong Leong Financial Group Bhd. reported year-over-year net income growth in 2023 despite net interest margin (NIM) compression due to higher funding costs. Maybank's earnings per share is expected to grow to 82 sen in 2024, from 78 sen in 2023, according to analyst estimates on S&P Global Capital IQ Pro. Maybank's EPS may expand further to 86 sen in 2025. CIMB Group's EPS may climb to 71 sen from 65 sen in 2023 and to 75 sen in 2025.

"We remain positive on the bank sector. For 2024, we expect profit before tax growth to return as cost pressure and NIM compression are likely behind us," said Tushar Mohata, Nomura's head of Malaysia equity research in a May 7 report. "On NIMs, we are cautiously optimistic that NIM compression has seen the worst in 2023, and we should see very minor NIM contraction in 2024."

Margins stable in 2024

In 2023, NIMs for all five large Malaysian banks dropped as they grappled with higher funding costs and tougher competition for deposits. Maybank's NIM dropped to 2.15% from 2.38%, CIMB Group's NIM fell to 2.27% from 2.53%, Public Bank's NIM fell to 2.16% from 2.36%, RHB Bank's NIM fell to 1.92% from 2.25% and Hong Leong Financial's NIM fell to 1.58% from 1.80%, according to S&P Global Market Intelligence data.

Still, their net incomes increased. Maybank, the biggest bank in Malaysia by assets, posed a net income of 9.35 billion ringgit in 2023, up from 7.96 billion ringgit in 2022. CIMB Group's net income increased to 6.98 billion ringgit from 5.4 billion ringgit. The other three lenders also posted net income gains.

In 2024, margins are expected to be stable. CIMB Group CFO Khairulanwar Bin Rifaie said during the bank's Feb. 29 earnings call that NIM guidance is "stable to plus 5 basis points." CEO Abdul Rahman Ahmad said the group is focused on NIM recovery through "loan growth" and plans to "just continue to drive our [current account saving account] to drive cost of deposits lower." In its earnings presentation, Maybank said it expects group NIM compression of up to 5 basis points for 2024.

Strong economy

Malaysia's economic growth is likely to improve in the next two years, which could support credit demand, analysts from S&P Global Ratings said at a May 8 webinar. GDP is expected to grow between 4% to 5% in 2024, according to Bank Negara Malaysia Governor Abdul Rasheed Ghaffour, as reported by the Business Times on March 20. GDP grew 3.7% in 2023.

"An increase in corporate demand, led by key infrastructure projects, may help push credit growth to 6% in 2024 from 5% in 2023," said Nikita Anand, credit analyst at Ratings, during the webinar. Ratings analysts expect funding and liquidity conditions for banks to stabilize in 2024 as fixed deposit rates appear to have peaked in 2023.

"We think another [3- to 5-basis-point] compression in margins is likely in 2024. This is because price competition for deposits could rise as credit growth picks up. We also note that competition in home loans is intensifying, putting pressure on margins," Anand said. "Higher credit growth and lower credit costs could offset margin pressure."

As of May 27, US$1 was equivalent to 4.70 Malaysian ringgit.