In a sectoral report released today, the research house said earnings were supported by modest total income growth, lower operating expenditure and provisions for loan impairments.

Most banks registered stronger loan growth in 4Q18 on a yoy basis. Aggregate sector gross loans also expanded at a faster pace of 5.4% yoy vs 4.8% yoy in 3Q18.

“The sector’s loan growth in 2019 is expected to be 4.0–5.0% lower than in 2018. This will be in line with the projected moderation in domestic economic growth to 4.5%.

“We expect consumer and business loan growth to taper in 2019, with the latter due to a slowdown in exports,” Ambank said in its research note.

The sector’s average net interest margin (NIM) was stable but is expected to mildly compress due to higher funding costs as deposit competition may intensify again.

Although current account savings account growth for the sector remained slow, some banks have yet to raise their base rates for the increase in cost of funds. Ambank sees this as an avenue for banks to mitigate the pressure on their funding cost.

Capital market activities were softer in 4Q18 despite improvements in 3Q18. Ambank projected a softer NOII for larger capitalised banks like Maybank and CIMB.

Markets are likely to be volatile which means there will be a challenge to maintain banks’ investment banking fees, and investment and trading income.

The gross impaired loan (GIL) ratio improved with lower credit cost for the sector in 4Q18. For 2019, Ambank expects asset quality for banks to remain stable.

4QFY18 saw lower new impaired loans formation, recoveries and write-off contributing to the sector’s lower impaired loans.

Full year 2018 provisions declined 28.1% yoy. For 2019, Ambank projects the sector’s GIL ratio to rise slightly from a slowdown in economic growth. It has forecast a moderate uptick in banks’ credit cost this year due to the slower GDP expansion.

Ambank’s top picks in the banking sector are RHB Bank, BIMB Holdings and Maybank.