Why non-interest income recovery is crucial for Malaysian banks

It will be a key earnings driver for the rest of 2017.

Domestic loans growth remains modest (annualised 7M17: 3.1%) and the positive NIM expansion trend in 1Q17 is normalising downwards sequentially (-2bp qoq in 2Q17 vs +5bp yoy from 2Q16 to 2Q17).

UOB Kay Hian's 2017 pre-provision operating growth forecast of 8% will be underpinned by the expectations of a sharp reversal in non-interest income fortunes in 2017 from stronger investment banking and lumpy corporate loans disbursement fee income.

"Note that despite a relatively strong capital market performance, 1HFY17 sector non-interest income growth despi was rather uninspiring with a 2.5% yoy growth vs our full-year estimate of 8.6% growth," the firm added.