PETALING JAYA: The banking sector could see a minor blip in earnings in the fourth quarter before it picks up steam in the first half of 2022.

       This would be underpinned by better economic prospects, steady net interest margin (NIM) growth and lower loss provisioning. And as such, some analysts are maintaining their “overweight” stance on the sector.

       Following the three good quarters in 2021, Hong Leong Investment Bank (HLIB) Research said it expects the fourth quarter of this year to see a minor blip but should improve in the first half of next year.

       It attributed this to a steady NIM, better macro environment, strict cost discipline, and lower impaired loan allowances.

       Overall, the research house said for the financial year 2022 (FY22), it projects the sector core net profit to grow 11% from 27% in FY21.

       It noted that the sector return on equity (ROE) is seen widening to 9% (plus 50 basis points (bps)) if the one-time Prosperity Tax impact is included, and growth rate would be smaller at 0%-1% while ROE would settle at 8.4% instead.

       ROE is a profitability ratio that measures the ability of a firm to generate profits from its shareholders investments.

       HLIB anticipates an OPR hike in the second half of 2022. The local economic recovery is seen to be flimsy at the beginning and will take some time before turning more entrenched, it noted.

       Hence, it expects Bank Negara to maintain the OPR at 1.75% in the first half of next year to help spur economic activities and look to only raise it in the second half of the fourth quarter. In turn, this would benefit banks.

       “We estimate every 25bps OPR hike will broaden sector NIM by five to six bps and lift the profit forecast by 4%-5%. The biggest gainers from this hike will be Alliance Bank Malaysia Bhd and Bank Islam Malaysia Bhd (BIMB), while the smaller gainers would be Affin Bank Bhd and Public Bank Bhd.

       “We believe the sector’s risk-reward profile is skewed to the upside as most negatives will have been considered by the market.

       “In our opinion, Covid-19 woes will likely fizzle out in 2022 while the state of the economy and banking sector will only get better in time.

       “As such, we are bullish and employ a rather broad stock buying strategy in the first half of 2022,” it added.

       For large-sized banks, the research house said it liked Malayan Banking Bhd for its strong yield and Public Bank for its resilient asset quality. For mid-sized banks, RHB Bank Bhd is favoured for its high common equity Tier-1 ratio and attractive price-tag.

       For small-sized banks, it said all three under its coverage are “buy” calls for different reasons, BIMB for its positive structural growth drivers, Alliance Bank is likened for its quicker-than-expected upward normalising dividend payout, and Affin Bank for its potential asset management arm value unlocking exercise.