KUALA LUMPUR, Jan 9 (Bernama) -- The earnings of banks are expected to weaken as they enter a more challenging fundamental macro environment this year, according to OSK Research Sdn Bhd.
In a research note today, OSK said the current valuation of banking stocks, at one standard deviation below the post financial crisis mean, appears to have priced in part of the impending earnings risk.
"We believe that it is too premature to turn bullish on banking stocks on the grounds that we expect non-performing loans (NPLs) to go up in the coming quarters and the quantum of increase remains a key lingering concern," it said.
However, OSK believes that a more sustainable return in risk appetite could be in the offing from end of second quarter when systemic risk would have subsided more as the various stimulus packages start to feed into the economy.
"We are maintaining our neutral call on the sector on the grounds that valuations have fallen to levels that may be deemed appealing for longer term investors but have not entirely priced in the potentially steeper-than-expected earnings risk ahead," the research firm said.
"We think that there will be more attractive share price entry points end of first quarter this year for investors to switch into higher beta recovery banking plays," it said.
Moving into 2009, OSK expects the impact of a weakening economic outlook, depressed consumer and business sentiment to have an impact on slower small and medium enterprises and consumer credit lending growth.
"Given that the full impact of the slowdown is expected to be reflected from second quarter onwards, we are now forecasting loans growth to decline to four percent in 2009," it said.
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Circular No 106/2012: Accountant’s Report 2011
