Local banks are expected to see improved results for the second quarter ended June 30, 2010 (2Q10), riding on a strong pickup in loans, according to banking analysts.
"Loans have been growing at a double-digit level year to date. This growth has been principally driven by household loans expansion. On top of that, business loans have also picked up since last year. Up until June year to date, annualised loans growth was 13%, which is really good.
"A lot of banks will enjoy a decent bottom line growth because of asset expansion," ECM Libra head of research Bernard Ching told The Edge Financial Daily.
"The second-quarter results of banks could be better than the first quarter on the back of loans expansion while credit costs remain under control," said Ching, who covers the banking sector.
According to Bank Negara, total loans at the end of 2Q10 stood at RM835.45 billion, compared with RM805.69 billion at the end of the first quarter this year (1Q10). That translates into a 4% quarter-on-quarter growth. Total loans at end-2Q10 stood at RM742.77 billion, which translates to a year-on-year growth of 12.5%.
Meanwhile, according to another local banking analyst, banks are expected to see improvement in provisions. "Net interest margins should see positive growth due to the overnight policy rate (OPR) hikes. Their forex business should be better as well," he said.
On March 5, Bank Negara Malaysia became one of the first Asian central banks to raise interest rates for the year. It raised the OPR by 25 basis points (bps) to 2.25%; again by another 25 bps on May 13 and by yet another 25 bps to 2.75% on July 8.
The signs of a better second quarter for banks are there. After all, Public Bank Bhd — the bank which more often than not is the first bank to announce its financial results — raked in strong numbers for the quarter.
The bank which also gives the highest return on equity to its shareholders posted a 20% rise in net profit to RM734.1 million in 2QFY10 from RM610.7 million a year earlier, underpinned by higher net interest and non-interest income, lower loan loss allowances and foreign exchange gains. Public Bank had registered a net profit of RM685.3 million for its 1QFY10.
Asset quality appears to be on solid ground.
For its 2QFY10, Public Bank's impairment coverage was stable at 134% and its gross impairment ratio was low at 1.21% (under the new FRS 139). Its gross non-performing loan (NPL) ratio under the old GP3 classification was at 0.9%.
"Impaired loans or net NPL ratio for banks is not an issue. Although the impaired loan ratio for the banking system has been edging higher of late, it is mainly due to the effect of reclassification of NPL as banks adopt FRS 139, rather than deterioration in asset quality," said Ching.
The gross impaired loan ratio superseded the NPL ratio following the adoption of FRS 139. The higher ratio is because under FRS 139, there is a more stringent classification that has caused some performing loans to be classified as impaired loans.
Banks with their financial year ending Dec 31, 2010 would have reflected this change in their respective first quarter ended March 31, 2010 but banks such as Alliance Financial Group Bhd and AMMB Holdings Bhd that have their financial year ending on March 31, 2011, would only see the impact in their upcoming first-quarter results ended June 30, 2010. The same goes for Hong Leong Bank and Maybank that have June year-ends, and would reflect these changes in their first quarter ending Sept 30, 2010.
Written by Joyce Goh
The Edge Malaysia
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