Business

Wednesday November 18, 2009

Banking stocks gain on stronger recovery signs

By YVONNE TAN


Market observers see strong return on equity, debt market activities

PETALING JAYA: Banking stocks have been attracting a fair bit of attention of late due largely to stronger signals of a global economic recovery.

“The clouds have lifted,” Pong Teng Siew, head of research at Jupiter Securities said.

And banks, generally the “backbone” of any economy are obvious beneficiaries.

As the global economic and operating environment continues to improve, market observers are expecting a strong return of activity in both the equity and debt markets which would inevitably boost demand for banking services.

Consumer demand is also expected to pick up as the economy improves, helping to increase demand for retail loans.

“The prospects of the banking industry are bright,” said TA Investment Management Bhd chief investment officer Choo Swee Kee.

From Nov 2 to yesterday, the Finance Index, which represents banking stocks, had risen by 4.79%, outperforming the benchmark FBM KLCI which rose 2.7% during the same period, according to Bloomberg data.

Choo says despite the recent run-up in banking stock prices, there remained laggards for investors to nibble on. He counts Malayan Banking Bhd (Maybank) and AMMB Holdings Bhd among these.

“Generally, the banking sector is still in play,” Jupiter’s Pong said.

While some interest in banking stocks could be seen as early as in the first quarter of this year alongside the first signs of recovery, it has become more pronounced of late, aided by talks of consolidation, corporate developments and good financial results.

For example, on Monday, shares in Affin Holdings Bhd jumped close to a two-year high on talks that its unit Affin Bank Bhd, also the country’s second smallest bank, would merge with Hong Leong Bank Bhd.

Also on Monday, the country’s second largest financial group CIMB Group Holdings Bhd, said it was going for a dual-listing on the Stock Exchange of Thailand (SET) in a move analysts said would raise the group’s profile as it expanded and sourced for business from multinational firms in the region.

“These kind of (talk and developments) provide the basis for continuous interest and excitement in banking stocks and we expect more,” Jupiter’s Pong said.

Local banking institutions also have the numbers to justify investor interest with recent banking results having proved to be mostly above market expectations.

For example, Maybank returned to the black in its recent quarter with its net profit surging 54.1% year-on-year to RM881.8mil for its first quarter ended Sept 30, backed by stronger contribution from most of its business segments like treasury operations, international business and investment banking

CIMB Group Holdings Bhd, the country’s second largest bank by assets, saw its net profit soaring 62.25% to RM726.83mil, in the fiscal third quarter ended Sept 30.

Revenue for the quarter jumped 65.57% to RM2.79bil compared with RM1.68bil last year helped by its Indonesian operations.

AMMB’s net profit, meanwhile, rose 4.4% in its recent quarter to RM240.16mil from RM230.13mil in the previous year while revenue increased 8.9% to RM1.59bil from RM1.46bil a year earlier. EON Capital Bhd posted a 9.2% increase in net profit to RM75.34mil in its third quarter ending Sept 30, 2009 from RM68.94mil earlier due to a rise in net interest income, net income from Islamic banking business and non-interest income.

With well-capitalised balance sheets, relatively low-risk business operations and expansion on the cards, most analysts are expecting banks, especially the larger ones, to continue to perform well in the coming quarters.

“You’ll do well to have some (bank stocks) in your portfolio,” an analyst said.

At yesterday’s close, Maybank shares rose 7 sen to RM6.94 while AMMB finished 6 sen lower to RM5.08 on profit taking.

Public Bank Bhd, the country’s third biggest bank by assets, closed flat at RM10.98.


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