KUALA LUMPUR: Malaysian banks are anticipated to see a resurgence of foreign investors, who had gradually retreated from the local banking sector in recent years, as evidenced by declining foreign shareholding levels.
According to Maybank Investment Bank Bhd (Maybank IB), there has been an increase in foreign investments in several banks, including AMMB and CIMB.
"With improved prospects for the economy and the banking sector, coupled with a strengthening ringgit, decent valuations and attractive yields, we believe the current environment is conducive for further foreign inflows back into the banking sector.
"We expect this overall stance to be positive for Malaysian banks, both from a direct and indirect basis," the firm said in a note.
It that Bank Negara Malaysia (BNM) is expected to hold the Overnight Policy Rate (OPR) at three per cent by the end of 2025 amid a strengthening ringgit, and this bodes well for banks' margins and non-interest income.
Moreover, with improved prospects for the economy, a stronger currency as well as decent valuations and yields for the sector, this could strengthen foreign flows back into the banks.
Maybank IB said that with easing inflation and rising unemployment, expectations are that the United States (US) Federal Reserve may start to cut the interest rates as early as September 2024.
"Our economics team expects a 50 basis points (bps) cut to the Fed Fund Rate (FFR) in 2024 and 100 bp cuts in 2025.
"With the prevailing large 250 bp gap between the (current) OPR of three per cent and the FFR of 5.25-5.50 per cent, the team expects no cut to domestic rates, with the OPR to stay pat at three per cent in 2024 and 2025, particularly since the risk to domestic inflation remains to the upside," it said.
Maybank IB said that in the absence of rate cuts that could further exacerbate net interest margin (NIM) compression, the firm expects average NIMs to stabilise with potential upside bias into 2025.
"What has been encouraging as well is that industry current account or savings account (CASA) balances have resumed growth, and this will help to ease margin pressure," it said.
It said that Maybank's fixed income research team has been, and continues to be mildly bullish on Malaysian Government Securities (MGS), forecasting the 10-year MGS yield of 3.60 per cent by year-end from around 3.70 per cent currently, amid a strengthening ringgit which was traded at 4.493 against the greenback today.
"What this implies is that banks could potentially continue to realise marked-to-market gains on their investment portfolios, which would serve to uphold non-interest income," it said, adding that the volatility of the currency would serve to ensure that forex income remains buoyant," it said.