Banking sector to see bullish future performance with more projects

Borneo Post, 10 July 2012

KUCHING: The Malaysian market is still looking robust with the FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI) achieving an all-time high in the past few days.

According to the research arm of Kenanga Investment Bank Bhd (Kenanga Research), the outlook was strong despite the global economy facing uncertainties due to the crisis in Europe.

Based on Bank Negara Malaysia’s (BNM) May 12 statistics report, there were strong indicators that the banking system would be able to support the lending and capital market activities with local funding.

Malaysian banks were also looking fundamentally solid with steady revenues, benign asset qualities, excessive provisions and good capital management, coupled with high capital ratios and healthy dividend payouts.

“The loan-to-deposit ratio in the month is at a slightly higher level of 78 per cent, with un-utilised deposits of RM293.7 billion,” said Kenanga Research.

Recap that DanaInfra Nasional Bhd (DanaInfra) recently came to a finance agreement with several banks on the RM8 billion government guaranteed-sukuk financing programme to finance the first phase of the Mass Rapid Transit (MRT) project.

“With RM8 billion loan financing already being agreed and more financing demand for further ETP projects to come, we continue to be bullish on both CIMB Group Holdings Bhd (CIMB Group) and Maybank to achieve their respective financial year 2012 (FY12) loan growth targets of 16 per cent,” said the research house.

This excess of RM293.7 billion would be able to support Economic Transformation Programme (ETP)-related infrastructure projects like the MRT project.

With the first phase of the MRT project costing only around RM30 billion, the research house was very optimistic that the banking system would be able to fully finance the overall MRT project without putting any stress on the local banking system’s liquidity.

Kenanga Research also expected the remaining RM22 billion financing requirement for the MRT project to further increase the loan growth and capital market pipelines of the banking sector and those banks, which were the joint lead arrangers for the financing programme.

The strong demand for financing the MRT project above was in line with its ETP-optimism theme where the research house saw an acceleration in credit growth for the banking system in the second half of 2012 (2H2012).

In addition to the optimism from ETP, the research house believed that the local banks would see robust performance in 2H2012 with their higher earnings and strong balance sheets.

As such, Kenanga Research pegged a fair value of RM10.40 per share for Maybank and RM8.50 per share for CIMB.