Rising outlook.

BANKING stocks are set to attract more attention ahead, thanks to signs of resilience.

BANKING STOCKS COULD BE attracting more buying interest from investors ahead. Of late, more and more banking analysts are turning positive on Malaysian banks, as they seem to have defied expectations despite the weaker economic outlook as their loans growth and non-performing loans (NPLs) have turned out to be more resilient than expected. For instance, CIMB Research in a recent report on the sector said that local banks have done surprisingly well in protecting themselves from the fallout from the economic downturn.

Apart from the positive effects of their higher weighting in the new Bursa Malaysia FBM KLCI Index from 25% to 34%, CIMB Research has also upgraded the banking sector to 'overweight' from 'neutral' for a timeframe of one month on the back of the following potential re-rating catalysts: (i) better-than-expected loans growth and NPL ratios, (ii) a revival of earnings growth in 2010, (iii) an improvement in investment banking income in line with the improving equity market, (iv) benefits from some banks' transformation programmes, and (v)strong growth in overseas operations.

Beating lower expectations The recent first quarter (1Q)09 was a subdued quarter for Malaysian banks, where the industry saw a 14.2% slide in industry net profit as the nation's 1Q Gross Domestic Product (GDP) shrank 6.2%. However, although most analysts were already more than pessimistic about the industry's prospects then, the earnings numbers that came out recently did not come anywhere near a fatal scenario.

Based on the latest banking sector statistics, things are actually not as bad as initially thought, says CIMB Research. For example, while loans growth for the industry in the first five months of 2009 (from …