When banks show better results, it’s a good sign.  

It’s easy to know if the economy is doing badly. It has nothing to do with Facebook sharing. The banks should report lower profits or even losses. In Malaysia,  I have not yet read about any bank reporting a loss thus far. Looking at the top three,  Maybank announced that net profit for its latest quarter grew by 16 percent. Report here.  CIMB announced its latest quarter with 27 percent up in net profits. and Public Bank grew their annual net profits by 3 percent. Well, perhaps only these three are growing while the rest are not? Let’s look at the smaller ones; Affin Bank, MBSB and even Bank Islam. Affix Bank showed that it had a great quarter recently. Net profits grew 76 percent compared to a year ago. The latest quarter for MBSB compared to a year ago? One year ago, it suffered a loss and this quarter, it has fully reversed that. What about a niche bank called Bank Islam? It’s yearly net profit fell by 13.8 percent but is still considered healthy, at RM139 million. In conclusion, the banks whether the biggest few or the smaller ones are generally going okay. Would this trend be continuing?
According to an article in NST,  this seems to be the case. The article quoted four good signs for the banks. They include steady net interest margins (NIM), stabilising credit costs, peaking non-performing loans (NPLs) and improving cost-to-income ratios (CIRs). Credit growth is also becoming more robust. Affin  Hwang Investment Bank Bhd expects banks’ earnings to grow 10.9 per cent this year followed by another 3.6 percent up in 2018. It said, “The Malaysian banks are currently riding on a new growth trajectory as the economy likely enters a new phase of protracted economic growth.” (VERY POSITIVE statement indeed) It’s top pick would be Public Bank Bhd and the following banks are rated “buy.” They include CIMB Group Holdings Bhd, Malayan Banking Bhd (Maybank), Alliance Financial Group Bhd and Hong Leong Bank Bhd. MIDF Research said, “We believe that the green shoots remain with a recent upturn in loans demand and approval. There was a positive turn in demand for loans, growing by 21.2 per cent year-on-year in February, compared with 8.4 per cent year-on-year decline in January, which marked the first growth in loans since July last year.” (Another very positive statement. The only caution would be if this will continue. Need a firmer trend to be sure)  MIDF gave Affin Holdings Bhd a “Buy” as its turnaround programme shows results. It expects CIMB and Maybank to continue earnings recovery with its solid asset growth and regional exposure. (I think many do not realise that many Malaysian banks are very regionalised already which bodes well for the future as ASEAN is growing)
Remember. There are many things that we as investors should take note of. Every investment guru would tell you to invest in whatever they are selling. However, they cannot change the numbers. If the economy starts turning for the worse, banks’ profits would be the first to show this sign. Look at their quarter results for signs. Property transactions meanwhile would only tell the property side of the story. When people start to take lesser new loans, the profits would naturally drop too. When unemployment starts creeping up, the new savings into banks would also reduce causing the banks to have less money to lend out. This will also cause the profits to start deteriorating. Keep following all these profit numbers from the banks. It’s more accurate prediction of the near future compared to surveys or what our friend says. Cheers.
written on 12 April 2017
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