PETALING JAYA: Banks have posted a decent set of earnings in 2021, despite the challenges due to the Covid-19 pandemic and the second six-month blanket loan moratorium on an opt-in basis.

       With the reopening of the economy in the fourth quarter of 2021, the demand for loans have returned. However, sector earnings are expected to come in muted in 2022 given the impact of the one-off Cukai Makmur (prosperity tax) on retained earnings.

       Maybank Investment Bank (IB) Research said unlike the hefty net interest margin (NIM) expansion, which supported operating profit growth of 6% in 2021, NIMs are expected to flatten or slightly contract in 2022 amid slower current account saving account growth and increased deposit competition.

       The research house said investors should look to 2023, where it projected an 18% net profit rebound on lower provisions and the absence of Cukai Makmur.

       “Having conservatively factored in lower non-interest income from further marked-to-market investment losses as bond yields rise and slightly faster expense growth, we expect the sector’s operating profit growth to be muted (up 2%) in 2022,” it said in a banking sector update yesterday.

       The research house added that it expected the higher tax under Cukai Makmur to offset lower credit costs and project a slight 1% contraction in cumulative core net profit.

       “Positively, the dividend payout ratios are normalising with upside surprises if they return to pre-Covid levels,” it said.

       Excluding the impact of the prosperity tax, it expects cumulative core net profit to expand 7% in 2022 and 8% in 2023.

       “There is room for upside surprises should interest rates rise further (we impute only one rate hike in the fourth quarter of 2022), and/or credit costs (which we have kept elevated) fall much faster,” it pointed out.

       The research firm expected a return on average equity to bounce back to 10.2% in 2023 from 9.1% in 2022 and 9.6% in 2021.

       Meanwhile, Hong Leong Investment Bank (HLIB) Research said the fourth quarter 2021 reporting season was a “fairly decent quarter” with sector profit rising 42% year-on-year on lower loan loss provision.

       However, quarter-on-quarter, profit declined 3% due to negative Jaws (which demonstrates the extent income growth rate exceeds expenses growth rate, measured as a percentage), elevated net credit charges and bond impairment.

       The research house anticipated recovery from 2021 to 2023 with earnings growing at a two-year compound annual growth rate of 10.1%.

       “We expect sequential NIM to hold steady at current levels before contracting again due to deposit rivalry.

       “That said, this is seen to expand when Bank Negara hikes the overnight policy rate later this year. Also, loan growth is expected to chug along given economic recovery,” it added.

       According to HLIB, the gross impaired loan ratio is likely to creep upwards but it is not unduely worried as banks have made heavy pre-emptive provisioning in 2020 and 2021.