PETALING JAYA: The outlook for the Malaysian banking sector for 2022 is stable as economic activities are expected to return to pre-pandemic levels, leading to more jobs and higher wages.

       A gradual increase in interest rates, according to IHS Markit, would also support the sector as it would help banks improve net interest margins and profitability, Bernama reported.

       IHS Markit research analyst, Tanisha Bhardwaj said the upbeat trend is in line with the positive regional sentiment across South-east Asia where banks from Thailand, Singapore and Indonesia are poised for steady growth in the new year.

       Where dividends were concerned, the report added that they are expected to rise by 9.25% on average in financial year 2022 (FY22) for all the four markets, including Malaysia.

       “However, there are still uncertainties surrounding the Covid-19 pandemic and prolonged supply chain disruptions, as well as natural disaster risks such as floods,” said IHS Markit.

       With FY21 year-end dividends to be announced this month, the research firm expects the Malaysian banking sector’s aggregate dividends to increase by 26% year-on-year (y-o-y) in FY21 to US$3.43bil (RM14.38bil). In FY20, the sector saw a 27.8% plunge in dividends due to Covid-19.

       According to IHS Markit, the dividend payouts were forecast to grow 4.6% y-o-y in FY22, supported by strong liquidity and capital buffers.

       But it noted that there was a mixed picture in terms of dividends in FY21.

       AMMB Holdings Bhd decided to hold dividend payouts until the end-2022 due to cautious capital management, while CIMB Group Holdings Bhd’s year-end dividend is expected to rise more than threefold from the previous year.

       As for Malayan Banking Bhd and Public Bank Bhd, they are expected to continue to be top dividend contributors.

       Separately, CGS-CIMB Research in a report yesterday noted that the pre-emptive provisions, or management overlay for Covid-19 is estimated to amount to RM6.84bil at end-September 2021 for local banks under its coverage.

       This accounted for 35% of the banks’ total gross impaired loan (GIL).

       “This should provide a strong buffer against any increase in GIL in 2022, in our view.

       Although the management overlay only accounted for an estimated 2.4% of the total loans under repayment assistance, we are not overly concerned about this as we think that only a small percentage of these loans would eventually turn into GIL, premised on the improvements in loan delinquency rate following the reopening of economy and continuous repayment assistance offered by banks to their borrowers,” the research firm added.

       It believes the provisions could be written back in 2023, at the earliest, if the GIL ratio does not spike in 2022.

       The research firm, which maintains an “overweight” call on the sector, estimates that every 10% write-back in management overlay would lift its FY23 forecast net profit for Malaysian banks by circa 2%.

       Based on its analysis, CGS-CIMB said that Alliance Bank Malaysia Bhd and AMMB would be the biggest beneficiaries of the potential write-back of management overlay on their FY23 forecast net profit.

       The expected hike in overnight policy rate (OPR) and the downward trend in loan loss provisioning could act as potential re-rating catalysts, it added.

       On the other hand, the potential downside risks include a wider-than-expected increase in GIL ratio and the absence of an OPR hike in 2022.