Banks may still benefit from lower credit costs, OPR hike

It said the banking sector is often synonymous with high dividend yields, with several names offering yields above 4.0 per cent.

"This should offset headwinds, namely asset quality concerns, normalisation of operating expenses, heightened deposit competition, and a moderation in loan growth following OPR normalisation.

"However, we are wary of the possibility of Prosperity Tax 2023 being announced in the Budget 2023, which may result in downward pressure to earnings forecasts and share price," it said.

Meanwhile, the research house noted that in line with higher customer demand for foreign currency (FCY) fueled by robust trade activity, banks' external debt has recovered considerably since the start of the pandemic.

"Nevertheless, banks continue to keep such risks well-maintained," it said, noting that the brunt of such debt is in the form of intergroup borrowings, which reduces refinancing risk.

Additionally, it highlighted that banks maintain sizeable FCY liquid assets - 2.6 times cover of short-term external "debt-at risk" (roughly the same level as pre-pandemic times), while the overall net open position remains low.