ECM Libra Investment Research has retained its overweight stance on the banking sector

"We expect credit expansion, return of capital market transactions, interest rate expansion and a slide in credit costs to drive earnings growth in 2010," it said in a research note here today.

ECM Libra said it likes CIMB for its regional as well as strong non-interest income growth.

"Public Bank continues to have superior earnings, return on equity and asset quality, while we believe Maybank will finally allay sceptics' concerns when it continues reporting strong quarterly profits going forward," it added.

ECM Libra said strong loans growth continued with the loan base growing 11.7 per cent year-on-year and 1.4 per cent month-on-month in May 2010 to RM821.4 billion.

Year-to-date, loan growth was at 4.8 per cent. While lending and deposit rates have increased following another 25 basic points Overnight Policy Rate (OPR) hike in May, the average lending rate -- three month fixed deposit -- spread continued to fall in May to 2.51 per cent.

"The competitive landscape suggests that interest margin expansion as a result of the OPR hike will not be uniform across the banking sector.