In a report, the investment bank explained that it has factored in sufficient credit cost buffers into its earnings projections, and is optimistic of the sector’s potential should pre-emptive provisions be gradually released.

“We have baked in the margin impact of just one rate hike into our earnings thus far, on conservative grounds,” it said.

Maybank IB revealed that it remains upbeat over the sector with a “buy” call on Hong Leong Bank, RHB Bank, AMMB Holdings, Alliance Bank Malaysia and Hong Leong Financial Group.

According to its research note, banks have set aside pre-emptive provisions since Q1 2020, at the start of the Covid-19 pandemic, and cumulatively the banks under its coverage have set aside roughly RM9.5 billion.

Maybank IB also disclosed that loans under repayment assistance had fallen from a peak of approximately 25% or RM440 billion in October/November 2021 to about 8% or RM142 billion in April this year.

If loans under repayment assistance continue to trend downward and should asset quality prove to be more resilient than expected, the banks can expect better earnings in the coming financial year.

Looking ahead, the bank acknowledged that the macroeconomic outlook for 2023 remains challenging, as the consumer price index is expected to hit 3.4% in 2022 and 4.1% in 2023.

Meanwhile, it expects Malaysia’s GDP to expand at a slower rate of 4% in 2023 versus 6% in 2022, it said.

“We have been wary of these macro developments for a while now and on a calendarised basis, we have kept credit cost assumptions elevated at 37 basis points in 2022 and 34 basis points in 2023, against a pre-Covid average of 28 basis points from financial years 2017 to 2019,” said Maybank IB

“In summary, we think we have built in sufficient buffers into our earnings against slower economic growth in 2023 at this stage.”