In a statement today, the research house noted that the second half of 2023 faces headwinds related to deposit competition, asset quality and provisioning.

However, it also said banks have made preparations by rolling out a stronger corporate loan pipeline, lighter operating expenses and steady non-interest income outlook to buoy the sector.

“Dividend yields as usual remain highly attractive, especially with the recent negative share repricing,” it said.

MIDF Research said hire purchases, residential mortgages and unsecured loans continued to boast exceptional figures.

While there was some weakness in business loans, the research house attributed it to the high base effects from last year.

“Overall, loan growth continues to be sluggish, though sequential monthly growth is more promising,” it said.

As for deposits, MIDF Research said there were some declines in fixed deposits (FDs) but current account savings accounts (Casa), on the other hand, showed month-on-month (m-o-m) growth.

It said FDs grew at 7.2% year-on-year (y-o-y) but shrank 0.6% on a monthly basis, suggesting that banks were likely continuing to let pricier FDs expire.

Meanwhile, the research house said the liquidity coverage ratio, which refers to the proportion of highly liquid assets held by financial institutions to ensure their ongoing ability to meet short-term obligations, showed a notable decline.

The gross impaired loan ratio saw a minor uptick of two basis points m-o-m, but there was a notable deterioration in the working capital segment, it added.