We all have at least a bank account for basic savings, loans and credit cards. But do you know that you can be a shareholder in these banks? If you are interested in investing in local banks, we have screened the top five banks in Malaysia with the help of Bursa Market Place for you.
According to RHB Investment Bank Bhd’s recent research report, the local banking sector is expected to deliver a 7% growth in their earnings (average) in 2017 compared with the previous year after experiencing three years of depressed earnings.
Since the gloomy economic condition that started three years ago, banking stocks have suffered lower share prices. Despite so, analysts believe this could be a good opportunity to start buying these banking stocks at a cheaper price before the market starts getting bullish in the near future.
If you are still not convinced, here are three reasons you should invest in local banks now:
- Banks have a solid stance with strong assets and this helps to reassure investors of their investment security compared to other industries.
- Banks are disciplined when spending every ringgit so you can be more confident with your investment.
- Banks are highly governed by local authorities such as Bank Negara, Securities Commission, and Bursa Malaysia. You can sleep better at night without worrying about the banks you invested in going awry overnight.
We believe some banks may outperform others and here are the top five banks you should be looking at now based on their earnings, risks, assets, and returns valuations. With the structured algorithm provided by Bursa Market Place, we picked the five banks that scored 8 and above (10 is the best) for your reference as below.
However, these scores may change from time to time and it is important to keep track of your investment portfolio using trusted sources before making any decision.
|Bank Islam Malaysia Bhd||Malayan Banking Bhd||Hong Leong Bank Bhd||Public Bank Bhd||CIMB Group Bhd|
|Price (RM) **||4.36||9.05||13.70||19.92||
Share Price Three-Year Growth (%)
|Market Cap (RM 'mil) **||7,140||92,301||29,697||77,332||
Earnings per share Growth (Five Year)* (%)
|Revenue Growth (Five Year)* (%)||-7.66||-||12.55||9.87||
Latest Financial Year Revenue (RM' mil)
Latest Financial Year Net Profit (RM' mil)
Latest Financial Year Dividend per share (sen)
Dividend Yield (%)
*Not all banks have five-year revenue and earnings per share growth records.
** As at April 19, 2017.
Source: Bursa Malaysia & Bursa Market Place
Top five banks in Malaysia to invest in
1. Bank Islam Malaysia Bhd (BIMB)
Malaysia is one of the leading countries in Islamic finance and BIMB being the leading Islamic bank in the country certainly deserves our attention. If you look closely at its share price, BIMB has seen a steady growth of 11.8% to RM4.36 (as of April 20, 2017) compared with a year ago.
Just to give you an update on its performance for the financial year (FY) 2016, BIMB reported financing growth of 14% year-on-year and this is better than the industry growth rate of 5.3% year-on-year, according to Maybank Investment Bank research report.
“Consumer financing expanded 13% year-on-year while commercial and corporate financing rose at a faster pace of 17% and 16% respectively. Within the consumer segment, the growth was driven primarily by house financing (+21% year-on-year), as personal financing growth tapered off to 9% year-on-year and vehicle financing contracted 6% year-on-year,” the report added.
This is not surprising as BIMB is benefitting from its Takaful and Islamic banking businesses, while local Islamic banking market shares are expected to grow to 30% this year from the current 28%, according to Bank Negara governor, Datuk Muhammad Ibrahim.
With a boost like this, BIMB is on a solid ground to continue to deliver outstanding performance in its earnings if it rides further on technology and innovations to expand its market share.
2. Malayan Banking Bhd
Being the biggest public listed bank on Bursa Malaysia, Maybank is a familiar brand to all Malaysians. There are good reasons to why this bank’s stock should be on your list to invest in.
For starters, its Islamic arm is almost just as strong as BIMB’s. Maybank also fights hard to be competitive in the industry by introducing new products such as credit cards and takes continuous efforts to expand its Islamic market in the region. Earlier this year, Maybank launched a new account for its Islamic private wealth clientele, allowing this high net worth (HNW) segment to maximise their balances in their various Islamic investment portfolios.
In the past two years, Maybank’s Islamic Total Financial Asset (TFA) for the HNW segment has grown 41% year-on-year, which is three times the growth of the overall TFA (conventional and Islamic), as reported by New Straits Times.
Next, Maybank is bold in adopting technology advancements and paves the way for local consumers to tap into internet banking. Maybank and CIMB have announced their plans to partner with Alipay, to bring the world's largest online and mobile payment platform to Malaysia.
On top of that, you should also know that Maybank has a long-term dividend policy of paying out 40% to 60% of its net profit as dividends over the past ten financial years. For its latest dividend yield of 5.53% (FY16), Maybank offers the highest dividend among the five banks listed here which means you are likely to get a higher dividend for every share you own in the bank.
3. Hong Leong Bank Bhd
Despite having a smaller market cap (RM29.69 bil) across the local banking sector, Hong Leong has strong asset quality and liquidity to balance itself against the uncertain economic situation.
The group’s gross impaired loan (GIL) continues to be impeccable at just 0.86%, lower than the industry’s GIL ratio of 1.59%.
Tip: A loan is impaired when it is not likely the lender will collect the full value of the loan because the creditworthiness of a borrower has fallen.
In other words, Hong Leong’s low GIL ratio indicates that most of its loans stand at a healthy position, allowing the bank to grow with consistent interest income and retrievable loan payment. On top of that, Hong Leong offers one of the most attractive personal loans in the market.
On top of that, an MIDF Research report points out that the bank’s loan and deposit continue to grow at a rate of 4.6% and 4.1% in the latest second quarter of FY2017, boosted by residential properties, SME, and individual deposit.
With both asset and income quality in place, Hong Leong definitely deserves a spot on your investment watch list.
4. Public Bank Bhd
This is the second largest bank in Malaysia and there were some times when Public Bank was cutting it pretty close to nail the first position in the recent years. Similar to Maybank, Public Bank has a substantial market share in the country and efficient management team to keep the company competitive.
“We are impressed by Public Bank’s ability to continue to generate stable profitability despite the challenging environment. Management of the business remains sound with healthy loans growth and robust asset quality,” said MIDF Research in a recent report.
The company is widely known for its founder, Tan Sri Teh Hong Piow who still attends the group’s annual general meeting at the age of 86 years old. Since it was established in1966, Public Bank has grown its customer deposits to RM310 billion.
Last but not least, Public Bank has a wide network in Asia, particularly Hong Kong (82 branches), China (4 branches), Cambodia (30 branches), Vietnam (7 branches), Laos (4 branches), and Sri Lanka (3 branches).
5. CIMB Group Bhd
Formed after a series of merger and acquisitions including the renowned Southern Bank Bhd in the early 2000s, CIMB has come a long way to where it is today. With its full-fledged consumer, investment and Islamic banking services, CIMB also have a brand presence in Indonesia and Thailand with its entities, CIMB Niaga and CIMB Thai.
For its latest FY2016 financial result, the group has claimed that it delivered the best performance in the history of CIMB with a net profit of RM3.5 bil, a 25% jump from a year earlier. However, you should know that its cost to income ratio remains at 53%, which is considered moderately high in the industry.
Nonetheless, CIMB still offers decent dividend yield as of the moment, at about 3.65% (based on the latest share price). In case you are not aware, CIMB offers great credit cards for entry-level and fresh graduates too!
Investing in stocks requires patience and deep understanding towards the business you are investing in. Thus, you should make sure to do as much research about the stocks you are interested in before making a decision. Also, remember to spread your investment over a long term period rather than expecting a return in short time.
"The individual investor should act consistently as an investor and not as a speculator." - Ben Graham
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Disclaimer: This article is for information and illustrative purposes only and does not purport to show actual results. It is not, and should not be regarded as investment advice or as a recommendation regarding any particular security or course of action. Opinions expressed herein are current opinions as of the date appearing in this material only and are subject to change without notice.
Reasonable people may disagree about the opinions expressed herein. In the event any of the assumptions used herein do not prove to be true, results are likely to vary substantially. All investments entail risks.
There is no guarantee that investment strategies will achieve the desired results under all market conditions and each investor should evaluate its ability to invest for a long-term especially during periods of a market downturn. No representation is being made that any account, product, or strategy will or is likely to achieve profits, losses, or results similar to those discussed if any.