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Banks’ profits is a good indicator of the market health

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Beyond all the many differing views about the state of the economy, especially depending on everyone’s own ‘narrow’ viewpoints to suit what how they wish to influence, we could also look at the banks’ for a lot of clues about the market. The more important sign would be profitability. Let’s understand that if the whole market is not doing well, unemployment is up and businesses are closing down for example, there’s NO WAY that the banks can continue to report a healthy set of numbers. My opinion is that there are challenges in the market but the economic growth remains intact. Slower, maybe but continuously inching upwards. (discount the last one week of political manoeuvres) Two banks’ results as below:

Article in themalaysianreserve.com Maybank chairman Datuk Mohaiyani Shamsudin said, “While we are hopeful for a better year ahead, clouds of uncertainty continue to hover. This is expected to impact the economic outlook in the near term.” Maybank as a group reported that net profit for financial year ended Dec 31, 2019 (FY19) has increased 1% year on year to RM8.2 billion. (WOW…) Full year revenue jumped 11.7% year on year to RM52.84 billion.

Article in theedgemarkets.com Public Bank Bhd’snet profit for financial year ended Dec 31, 2019 (FY19) has dropped slightly to RM5.51 billion from RM5.59 billion the year before. (By the way, RM5.51 billion is still very healthy!) The reason for this slight dip is because of Bank Negara Malaysia’s overnight policy rate (OPR) cut recently. (Read article here) as well as higher operating costs. Full-year operating revenue came in 1.87% higher at RM22.45 billion, compared to RM22.04 billion in FY18.

There are two common things for these two major banks in Malaysia. The profit numbers are now facing pressure from many sides. Whether it’s due to the BNM’s decision to cut the OPR to support the market or even due to the pressure from competition in the market, this will continue to exert pressure on the profit numbers. This year itself, we will see a few Digital Bank licenses being given out by BNM too.

Thus, if the economy is no longer growing as fast as the year before, the banks’ current profit levels may not be sustainable yeah. Imagine the same sized cake which is not growing bigger but is now shared by more people… However, just as my opinion about malls versus online shopping, I do not believe digital bank will take over the traditional banks anytime soon. (Earlier article on malls here)

In fact, the fiercest competition amongst banks will come from the other banks. The bank which could not keep its customers and lost it to the other banks will see their profits eroded. Till then, happy using your favourite bank and remember that to get the highest fixed deposit rates, staying with the same bank may not be enough yeah. Cheers.

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Next suggested article: Property prices rising too fast is bad for the banks and the people too

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