KUALA LUMPUR: Aminvestment Bank Bhd has maintained its 'overweight' rating on the banking sector, with an expectation of stable to modestly higher net interest margins (NIM) for banks in 2021.

In a research note today, the investment bank said it has revised the sector's calendarised core earnings growth for 2021 to 23.5 per cent from 16.1 per cent previously, after adjusting assumptions for higher NIM and fine-tuning its credit cost estimates.

"We expect sentiment on banks to improve after the resumption of dividends with better visibility on earnings and asset quality post-automatic moratorium.

"The vaccination programme, which is on track, recently boosted swap rates and Malaysian Government Securities (MGS) yields, a reflection that the market is not pricing in further rate cuts. Coupled with the prudent front-loading of provisions, these are seen as positive for banks' earnings ahead," it said.

AmInvestment said their top 'buy' call for banks are Hong Leong Bank with fair value (FV) of RM20.30 per share, RHB Bank (FV RM6.80 per share), Maybank (FV RM9.80 per share) and CIMB Group (RM5.50 per share).

"We favour the larger systematic banks, Maybank and CIMB to ride on the economic recovery in 2021 and banks with undemanding valuations like RHB Bank trading at attractive price/book value.

"Also, we like Hong Leong Bank with its strong topline growth, robust profit contribution from associates and resilient asset quality," it said.

Meanwhile, Aminvestment noted that the banks' twelve months 2020 (12M20) core calendarised earning growth contracted by 20.8 per cent year-on-year (y-o-y) largely due to banks' proactive setting aside of provisions for potential credit losses.

"This was despite a marginally higher total income, supported by stronger non-interest income (NOII) which offset a weaker net interest income (NII) from interest rate cuts.

"In the fourth quarter of 2020 (Q4 2020), banks had prudently raised their provisions further, which dampened their earnings for the quarter," it added.

Furthermore, it said most banks recorded a slower pace of loan growth in Q4 2020, while the underlying NIM rose 2.20 per cent quarter-on-quarter in Q4 2020, supported by reprising of liabilities and better deposit mix which lowered funding cost.

"Stronger treasury, wealth management and brokerage income contributed to the rise in the sector's NOII by 4.5 per cent y-o-y in 12M20.

"There were also further gains from the sale of securities in Q4 2020, but generally investment and trading income was lower than in Q3 2020," said Aminvestment.

-- BERNAMA