Malaysia’s top 5 banks post higher earnings, pay generous dividends

[KUALA LUMPUR] BANKS in Malaysia continued to perform well in the fourth quarter for the 2022 financial year, with analysts optimistic on the banking sector’s growth this year even though there remain downside risks amid global headwinds.

The country’s top five banks – Maybank, Public Bank, CIMB Group, Hong Leong Bank and RHB Bank – all announced generous dividends while unveiling their financial performance earlier this week.

Except for Hong Leong Bank, which reported the results for the first six months of FY2023, the largest banks saw their revenue increase year on year by between 1.5 per cent and 12.8 per cent in FY2022.

Maybank – the largest bank with the highest market capitalisation of RM105.7 billion (S$32 billion) – announced a dividend of 58 sen a share for FY2022, the highest among all the banks.

In terms of revenue improvement, RHB Bank was the top performer, with its turnover jumping nearly 13 per cent to RM13.2 billion in FY2022.

CIMB and Hong Leong Bank recorded the highest growth in net profit growth. The net profit growth for CIMB rose 28.5 per cent to RM5.4 billion, while Hong Leong Bank’s net profit for the first six months of FY2023 surged 33 per cent to RM2 billion.

Ng Zhu Hann, the chief executive of boutique fund manager Tradeview Capital, attributed the strong financial performance of Malaysia’s banks to the higher interest rate hikes last year.

“The banking sector benefited from the upswing in interest rates, and a healthy loan growth last year as the economy reopened,” he told The Business Times.

The central bank, Bank Negara Malaysia, delivered a cumulative 100 basis points in rate hikes last year, pushing the overnight policy rate (OPR) back up to its pre-pandemic level of 2.75 per cent.

CGS-CIMB analyst Winson Ng shared the same view, noting that most banks benefited from strong net interest margin (NIM). One of them, Public Bank, saw its net profit rise by 8.2 per cent in the fourth quarter of FY2022, driven by a 10.2 per cent rise in NIM.

UOB Kay Hian head of Malaysia research Vincent Khoo observed that the banking sector posted positive earnings surprises, riding on Malaysia’s strong economic growth.

He noted that provision write-backs was one reason for the improvement. RHB Bank, for instance, has reduced its loan loss provisions to RM421 million in FY2022 from RM737 million in FY2021.

Malaysia’s financial institutions recorded a loan growth of 5.7 per cent year on year in December last year, which was marginally higher than analysts’ projections of between 5 per cent and 5.5 per cent.

However, system loan applications and approvals – including car, housing and working capital loans – declined. Loan applications and approvals in December dipped by 12 per cent and 52 per cent, compared to previous month.

Analysts saw this as a downside risk to the banking sector if the broader economic downturn continues.

CGS-CIMB’s Ng said that deterioration in loan growth and asset quality amid inflationary pressures could lead to weaker net interest income growth and a possible increase in loan loss provisioning.

Another potential risk would be protracted deposit competition in the banking sector, which could dilute the positive impact from OPR hikes, he added.

Tradeview’s Zhu, meanwhile, added that as far as interest rates are concerned, the markets are widely expecting the central bank to announce at least another 25-basis-point hike later this year.

“The OPR hike could be a double-edged sword to the banking sector as it will affect the loan growth and borrowers’ repayment ability, which will lead to increasing non-performing loans,” he said.

Nevertheless, observers remained upbeat on banking counters for the year ahead, with Malaysia’s economy expected to fare well compared to many of its peers in the region. The official forecast is for growth to come in at 4 per cent this year, down from 8.7 per cent in 2022.

Zhu said that banking stocks remain popular among fund managers because of the stable dividends.

“Even when the economy slows down, Malaysia’s banks are able to offer a dividend yield of between 5 per cent and 6 per cent,” he added.

The dividend yield for the top five banks in Malaysia ranged from 4 per cent to 7 per cent in FY2022, with the announced dividends ranging between 17 sen and 58 sen a share.