NIM, higher expenses drag on Malaysian banks’ earnings growth in 2023

Mid- to high-single digit NIM compression will offset loan growth, an analyst said.

After a whopping 22% growth in earnings, Malaysia’s banking sector’s earnings growth will slow in 2023, with net interest margins compression and higher operational expenses likely in the books.

Earnings are only expected to grow by 4% in 2023, UOB Kay Hian analyst Keith Wee Teck Keong noted in a report, slowing from the 22% sector earnings growth in 2022.

There will be minimal earnings catalysts to drive sector outperformance this year, noted UOB Kay Hian analyst Keith Wee Teck Keong.

“Key drags to 2023 sector earnings are, [first] a flattish net interest income trend as mid to high single-digit NIM compression will essentially offset a 4.5% loans growth expectation,” Keong noted.

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Operational expenditure is also expected to remain elevated given the persistent inflationary pressure. 

Loan growth will moderate downwards to 4.5% from 5.3% in 2022, Keong added.

Not-interest income and lower credit costs, meanwhile, will drive earnings growth in 2023. UOB Kay Hian forecasts a slight improvement in net credit to 27 basis points (bp), down from 30bp in 2022; and a 6% non-interest income growth.