Unicapital Securities Inc. said the operating income of banks may have peaked last year after interest rates also peaked.
“We believe growth should continue until the first half this year, as we project policy rate cuts to occur in the latter part of the year,” Unicapital Securities said.
Unicapital Securities expects the central bank to reduce rates by 75 basis points (bps) to 5.75 percent, from the current 6.5 percent, by then.
“We expect a 20bps decline in net interest margins (NIMs) of banks in our coverage. Despite this, we believe that favorable asset quality and improved loan growth will partially offset the impacts of the rate cuts in the current year, thereby supporting the sector’s return on equity (ROE),” it said.
Unicapital Securities said loan growth could partially offset the impact of rate cuts on NIMs.
The stockbroker sees loans growing by a “mid-single-digit” — nearly the same as last year — aligning with the expected gross domestic product growth.
“The anticipated lower cost of capital should drive higher capital expenditure spending, particularly for corporates that are invested in infrastructure projects,” it said.
“In addition, asset quality of banks in our coverage remains benign with NPL (non-performing loan) ratio of 2.2 percent in 2023-2024 compared to 3.2 percent peak in 2021. Therefore, we expect credit costs to further decline this year to an average of 41bps from 44bps in 2023 supporting the earnings of banks under our coverage,” Unicapital Securities added.
