PETALING JAYA: Malaysian banks are among those in the region whose valuations look “attractive” currently.

       CGS-CIMB Research said this in a banking report to clients saying that banks generally have been performing well so far this year, with banks in China, South Korea, Singapore and Malaysia clearly standing out in terms of their stock performances versus their respective country index benchmarks.

       “Despite this share price strength, valuations look attractive, with banks in China, India, Thailand, South Korea and Malaysia all trading below the post-2014 mean on a forward price-to-book value multiple basis,” the research house said.

       It said as a rate hike cycle starts globally, investors need to be positioned for stocks that can benefit from higher interest rates, with banks benefiting via higher net interest margins (NIM), and hence stronger net profits.

       In this regard, it noted that banks in Indonesia, Singapore and South Korea were better positioned to benefit from the rising rate cycle, due to a combination of a high mix of low-cost deposits, low loan-to-deposit ratios, or low non- interest income ratios.

       “South Korean banks are already benefiting from being well into a rate hike cycle, while Singapore banks benefit from a high correlation between rates in Singapore and the US, where we see rates rising more markedly than other regions until 2024,” it said.

       It also noted rising net interest margins and falling credit costs were driving “rebounding” return on equity or ROEs.

       “Indonesian and Indian banks stand out, with FY22 ROEs rising back to pre-pandemic levels.

       “Rising ROEs are also seen in Singapore, Malaysia and Thailand in FY22, “ CGS-CIMB said.

       The research unit is staying “overweight” on banks in Asia, saying that potential re-rating catalysts were rate hikes and “rebounding” ROEs.

       “Key downside risks are major economic slow downs and policy risks.”

       Meanwhile in a recent statement, RAM Ratings noted that Malaysian banks’ profit performance staged a strong recovery in 2021, buoyed by broader NIMs, lighter loan provisioning expenses and disciplined cost control.

       “Core earnings before tax in 2022 are expected to improve marginally, underpinned by more moderate impairment charges.

       “Bottom lines will however be weighed down by Cukai Makmur, the one-off prosperity tax,” it said.

       RAM co-head of financial institution ratings Wong Yin Ching said in the same release that significantly smaller modification losses and the full-year effect of lower deposits rates saw the average NIM of eight selected banks swell by 22 basis points to 2.28% in 2021.

       “Despite the likelihood of an overnight policy rate hike in the second half of 2022 and the absence of modification charges, we expect NIMs to be held broadly stable, given the continued tapering of current and savings account deposits growth from a peak in early 2021.”

       RAM said on the whole, the aggregated pre-tax profits of the eight banks in the country surged 42% in 2021 (after adjusting for entity-specific exceptional items), reaching the level achieved pre-pandemic in 2019.

       “Seven out of eight banks reported improved profit performances with an overall average return on assets of 1.25% last year versus 0.92% in 2020.

       “Considering the high base effect, profit outperformance this year will be relatively limited. Lingering Covid-19 risks and second-order effects from the escalating Russian-Ukraine conflict further cast some degree of uncertainty over banking growth prospects.”