Affin Invt remains positive on banking stocks

However, the investment bank estimates that non- performing loans will pick up and has trimmed the industry's 2008-10 net profit forecasts by 5.6-7.3 per cent

AFFIN Investment Bank has an overweight stance on banking stocks despite revising the overall earnings of several banks.

The positive outlook is made against the industry's healthy dividend yields and the banks' attractive valuations.

In its June 30 research note, Affin Investment Bank said it is not trimming its loan growth projections, noting that the eight per cent loan growth is achievable for this year despite the slowdown in economic activities.

"Although we expect loan growth to ease in second half of this year we believe the eight per cent year-on-year growth is achievable buoyed by the strong start in 2008," it said.

It added that there are no signs of a slowdown in demand for credit or tightening in credit standards, making its modest loan growth projection realistic.

"We believe that the Malaysian economy will stay resilient, thanks to the surge in commodity prices," it said.

However, Affin Investment Bank estimates that non-performing loans (NPLs) will pick up and has trimmed the industry's two-year (2008-10) net profit forecasts by 5.6 to 7.3 per cent.

The cut is in anticipation of a rise in NPLs, reduction in write-backs, weaker contributions from fee income segment and greater unrealised losses on trading securities due to the weak capital market.

It also expects dividend payout to ease due to the bank's need to conserve cash during an economic slowdown and position for potential mergers and acquisitions.

The investment bank is maintaining a buy for Public Bank due to its attractive dividend yields, Bumiputra Commence, RHB Capital and AMMB due to the cost saving initiatives and ongoing efforts to improve efficiency by streamlining operations.