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Hot Sector – Can banking stocks reverse the market downtrend?

Trading room – Tue 4 Dec 2018


According to one analyst’s report, the latest Oct 2018 Bank Negara Statistics showed that Industry loan growth in the banking sector gained traction to 6.0% YoY (year-on-year) in Oct 2018 (Sept 2018: 5.7% YoY) supported by a stronger momentum in non-household loans while growth in household loans remained stable.

The year-to-date (YTD) annualized industry loan growth was 5.4%, and it remained close to its expectation of 5.0% for 2018.

The Oct 2018 household loan growth was seen as steady at 5.9% YoY albeit a slight moderation after the tax holidays according to the analyst report.

The slightly slower pace was said to be contributed by a slowdown in the growth of mortgage loans, loans for purchase of securities and outstanding credit card receivables.

Meanwhile, loans for purchase cars were seen still holding up.

However, another research house is maintaining its Neutral outlook for the banking sector due to concerns over margin compression, and the expected deterioration in asset quality.

It said that the industry’s gross impaired loan (GIL) ratio inched down from 1.53% at end-Sep 18 to another all-time low of 1.52% at end-Oct 18 while the loan loss coverage was largely stable at around 96% over the same period.

However, it warned that in view of the challenging operating environment due to the uncertainties from policy changes in Malaysia and the trade tensions between the US and China, it still sees risks of an uptick in the GIL ratio to 1.8% by end-2019.

It added that the possible better-than-expected loan growth and GIL ratio in 2018 could be largely offset by the downside risks from margin erosion, judging from the fact that most banks saw their margins contract in 3Q18.


Given that the banking sector is the biggest sector in the market and account for more than 22% in market capitalization of the stocks tracked by analysts, a rise in the market main indices is likely only possible if bank stock prices start to rise back.

What is the trading outlook for the big and small banks in the sector? Which banking stock is likely to outperform if the market sees a reversal and which banking stock should you avoid?

Read through the mPower Algorithm report today as we highlight the current trading outlook of the sector and two banking stocks that are likely to be the best performers in the sector.