Which amongst the Malaysian banks had the strongest profit growth in Q2?

Two of the Malaysian banks' earnings grew 43% in Q2.

The percentage of banks delivering positive earnings surprise declined from 44% in 1Q17 to 11% in 2Q17 (only Affin surprised on the upside), whilst two disappointed (Maybank and BIMB), according to UOB Kay Hian.

"Maybank and RHBBank registered strongest earnings growth on low-base effect. Lumpy O&G related bond impairments in 2Q16 for the likes of Maybank and RHBBank helped to fuel a relatively strong 19.0% yoy low-base effect, which drove 2Q17 sector earnings growth," the analyst said.

Here's more from UOB Kay Hian:

Excluding the lumpy Swiber bond impairments, 2Q17 earnings reflect a milder 8% yoy growth (vs 1Q17’s 12.3% yoy growth). Maybank and RHBBank witnessed the strongest 2Q17 earnings growth at 43.0% and 43.1% respectively, driven by the lowbase effect of their 2Q16 earnings base arising from the abovementioned Swiber bondimpairments.

Excluding the lumpy effects of the bond impairments, CIMB registered the  strongest earnings growth at 26.3% yoy followed by Maybank at 18.6% yoy, driven largely by strong NIM expansion from lower funding cost and lower provisoins. This is  however well reflected in our 30% and 15% FY17 earnings growth assumption for CIMB and Maybank respectively. RHBBank’s 2Q17 earnings growth, excluding the low-base effect of lumpy bond impairments, was a modest 3.2% yoy.

Mixed performance for the rest. Excluding Maybank and CIMB, 2Q17 earnings growth for the other banks averaged 2.5% yoy as upward normalisation in credit cost, modest fee income and loans growth of 4.5% and 4.8% stifled overall earnings growth. In fact, qoq loans growth moderated to 0.1% in 2Q17 from 0.3% in 1Q17.

Rise in provisions leads to a slower sequential growth. As expected, provisions are normalising upwards with sector net credit cost rising from 31bp in 1Q17 to 41bp in 2Q17. This is in tandem with the 14.9% yoy and 2.4% qoq increase in gross impaired loans balance, which resulted in a 16bp yoy increase in GIL ratio to 2.05%.

Earnings forecast largely unchanged. As 2Q17 earnings trends were largely within our expectations, we have kept our FY17/18 sector earnings forecast largely unchanged at 12.7% and 6.6% growth respectively.