By Harizah Hanim Mohamed

KUALA LUMPUR, March 1 (Bernama) -- The sterling performance of Malaysia’s commercial banks and financial institutions in 2018, with some hitting record profits, is a shot in the arm to boost confidence in corporate earnings growth as the sector plays an important role in the financial system and the economy. 

"The results are a relief for investors and at least we won't be seeing drastic changes in corporate earnings growth," Rakuten Trade Sdn Bhd Head of research Kenny Yee told Bernama.

Analysts have previously projected a lower corporate earnings for 2019 at around three per cent, which would be better than the 2018 projection of one per cent, lifted by the banking sector and a recovery in palm oil and crude oil prices.

Yee explained that loan growth and lower impairment, particularly in the fourth quarter, had lent some support for these banks and for the current year, a loan growth target of between five per cent and six per cent was reasonable.

"But we also have to take note that these banks would face challenges in terms of margin compression as well as possible lower-than-expected growth," he added.

Meanwhile, Bank Islam Malaysia Bhd (BIMB) chief economist Dr Mohd Afzanizam Abdul Rashid said financial results had been decent despite slowing economic growth of 4.7 per cent in 2018 and there were intermittently rising impairment during the middle of the year which saw gross impairment ratio rise to a high of 1.60 per cent in May 2018 before receding to 1.45 per cent at the end of December 2018.

"We could also see net interest margin has been quite challenging with average lending rates falling to 5.019 per cent in December 2018 from a high of 5.065 per cent in July 2018.

"This happens amidst intense competition for deposits. Therefore, non-interest income or non-fund based income (for Islamic banking) will be a key factor in mitigating the margin compression faced by the banks," he added.

Mohd Afzanizam said the latest numbers showed that total loan applications fell by 5.4 per cent year-on-year (y-o-y) in January 2019 and similarly, total loan approvals declined by 4.8 per cent y-o-y in January 2019.

"Therefore, we could expect industry’s loan growth would moderate this year from 5.6 per cent expansion 2018, in view of challenging economic outlook brought by the external uncertainties and moderate domestic spending, we could expect banks will be more cautious in their lending activities in 2019," he elaborated.

CIMB Group Holdings Bhd reported a 25 per cent jump in net profit to a record high of RM5.58 billion in the financial year ended Dec 31, 2018 (FY18) from RM4.48 billion in the preceding year; however, revenue declined to RM17.38 billion from RM17.63 billion previously.

CIMB Group has a targeted loan growth of six per cent to seven per cent for the financial year ending Dec 31, 2019 (FY19), versus the industry's forecast of five per cent, amid expectation that gross domestic product would grow at 4.5 per cent in 2019.

Malayan Banking Bhd (Maybank), on the other hand, saw a 7.9 per cent increase in net profit for FY18 to RM8.11 billion from RM7.52 billion a year ago, with its revenue expanding to RM47.32 billion from RM45.58 billion previously.

However, the bank maintained a conservative stance on the growth outlook for FY19 as various external uncertainties loom.

As for other financial conglomerates, BIMB Holdings Bhd’s net profit for FY18 improved 10 per cent to RM682.06 million from RM619.84 million in the preceding year, Affin Bank Bhd’s net profit for FY18 rose 20.4 per cent to RM503.08 million from RM417.85 million in FY17, and Hong Leong Bank Bhd’s net profit in the second financial quarter (Q2) ended Dec 31, 2018, rose to RM687.25 million from RM683.07 million a year earlier.

Public Bank Bhd achieved a net profit of RM5.59 billion in FY18, up 2.2 per cent from RM5.47 billion recorded in the previous year, while RHB Bank Bhd saw its net profit jump 18.2 per cent to RM2.31 billion for FY18 from RM1.95 billion in 2017.

RHB projected its loan growth to grow between 5.0 per cent and 5.5 per cent, supported by both the consumer and business segments.

General loan financing services provider, RCE Capital Bhd, saw its net profit go up by 9.4 per cent to RM71.80 million for the nine months ended Dec 31, 2019, compared with RM65.65 million before, primarily due to higher net interest income.

Revenue increased 6.8 per cent to RM195.17 million from RM182.66 million previously.

RCE said it was confident that 2019 would continue to be a profitable year.

Meanwhile, the framework of base rates based on banks’ cost of funds, which serves as the main reference rate for pricing retail loans like mortgages, has helped banks in maintaining their financial performance, with BIMB be the latest bank rising its base rate and base financing rate by 25 basis points effective February 2018.

Hong Leong, CIMB and  Bank Muamalat  Malaysia Bhd are among the banks that have raised their respective base rates by 10 to 13 basis points.

-- BERNAMA