Malaysian banks' net profit to grow 4.8% in 2020: report

But NIMs are expected to taper off a further 3bps over the period.

Malaysian banks’ operating profits or net profit growth is expected to hit between 4.7%/4.8% in 2020 from 3.2%/1.1% in 2019, on the back of moderating net interest margin (NIM) compression and stable albeit elevated credit costs, according to a report by Maybank IB Research.

The banking environment will likely remain challenging throughout the year, said Maybank analyst Desmond Cheng, with loan growth expected to moderate to 4.1% in 2020 from 4.2% in 2019. NIMs are also forecasted to taper off by 3bps in 2020, factoring in the further 25bps rate cut as well as a slower GDP growth of 4.4% in 2020.

Also read: Malaysia's loan growth slows to 3.2% in October

Cheng also noted that asset quality will continue to deteriorate through the year. Average gross impaired loan (GIL) ratio for banks is expected to rise by 13bps in 2020 and 12bps in 2021, whilst credit costs will also remain elevated at about 30bps.

Primary risks throughout the year would be if NIMs compress more than anticipated, or asset quality deteriorates much faster than anticipated. The oversupply situation in the commercial property continues to drive asset quality concerns, whilst uncertainties in the global economic front may affect the quality of trade-related credit lines, noted Cheng.

CASA growth is also on a slowdown, which in turn is lagging overall system deposit growth, and may result in further deposit competition in the down road.