Highlights

HLBank Research Highlights

Author: HLInvest   |   Latest post: Tue, 11 May 2021, 4:59 PM

 

Banking - Chugging Along

Author:   |    Publish date:


We are glad that the banking system has sufficient buffers to withstand extreme stresses. From BNM’s updated stress tests, credit costs could rise to RM26.2bn over CY21-22 while GIL ratio is projected to increase to 5.4%; coincidentally, the assumptions baked into our financial models were largely similar, implying we have employed conservative estimates. Although we are not entirely out of the woods yet, there are still reasons to be optimistic with the sector: (i) Covid-19 vaccination rollout, (ii) healing economy, and (iii) ample market liquidity. Retain OVERWEIGHT. We have BUY ratings on Maybank, RHB, and BIMB.

Yesterday, BNM published its 2H20 Financial Stability Review Report. In this write-up, we collated the key highlights relevant to the banking sector.

In a resilient state. Despite challenging credit risk outlook, banks continue to be well positioned to support economic recovery, thanks to ample capital and liquidity buffers: (i) strong CET1 ratio of 14.7% (2019: 14.6%) and (ii) robust liquidity coverage ratio of 147.1% (2019: 149.1%). From BNM’s updated stress tests, we gathered credit costs could rise to RM26.2bn over CY21-22 while GIL ratio is projected to increase to 5.4% (from 1.6%); coincidentally, these are the sort of assumptions that we have baked into our financial models, implying conservative estimates. Besides, sector CET1 ratio in FY22 is seen to fall 90bp to 13.9%, which is still comfortably above the 7% minimum level; we understand banks have enough buffers to withstand default rates that are 8x higher than normalized levels (this is more severe than our worst experience during the Asian Financial Crisis where impairments rose 3-5x from initial levels).

Solid HH debt serviceability. The total household (HH) debt-to-GDP ratio was higher at 93.3% (2019: 82.9%), no thanks to the contraction in GDP, but generally HHs were borrowing within their means; median debt service ratio for outstanding/new loans are 35%/43% respectively (2019: 37%/43%). Also, aggregate financial asset-to-debt ratio stood at 2.2x (flat vs 2019) and if only liquid financial asset is considered, the debt cover is 1.5x (2019: 1.4x). Besides, HH repayments have reached 93% of levels seen back in 2H19, indicating most have already resumed repayments. As at Dec-20, HH repayment assistance amounted to 8.9% of total HH loan accounts (59% under loan moratorium) or 11.1% of outstanding HH loan exposure.

Biz borrowers keeping up with obligations. For businesses (Biz), interest coverage ratio has fallen to 4.1x (2019: 4.8x) and the share of listed companies with less than 2x multiple has increased to 31.8% (2019: 28.1%). On a more optimistic note, debt-to equity ratio fell to 23.4% (2019: 25.5%) while the cash-to-short-term-debt ratio was stable and robust at 1.1x (2019: 1.0x). Also, SME repayments have approached 116% of levels observed back in 2H19. As at Dec-20, 9.7% of total business loan accounts are under debt repayment assistance (90% are SMEs) or in value terms, accounted for 17% of total business loans.

Maintain OVERWEIGHT. We are glad that the banking system has sufficient buffers to withstand extreme stresses, which are more dire vs the historical worst experienced to date. We remain optimistic on the sector given: (i) Covid-19 vaccination rollout, (ii) healing economy & (iii) ample market liquidity, motivating ‘risk on’ appetite into stocks with recovery and deep value traits. For large-sized banks, we like Maybank (TP: RM9.20) over Public (TP: RM4.25) and CIMB (TP: RM4.50); Public’s valuation is rich, has high foreign shareholding level and low yield while CIMB is a riskier proposition given less solid asset quality. For mid-sized banks, RHB (TP: RM6.65) is preferred over AMMB (TP: RM2.95) as the former has a stronger CET1 ratio and larger FVOCI reserve to buffer vs steeping yield curve. For small-sized banks, BIMB (TP: RM5.00) is favoured vs Affin (TP: RM1.85) and Alliance (TP: RM2.90), for its positive long-term structural growth drivers and better asset quality.

Source: Hong Leong Investment Bank Research - 1 Apr 2021

Share this

Related Stocks

Chart Stock Name Last Change Volume 
MAYBANK 8.21 +0.02 (0.24%) 4,726,000 
PBBANK 4.14 +0.04 (0.98%) 26,248,900 
CIMB 4.18 +0.08 (1.95%) 8,818,200 
RHBBANK 5.27 +0.16 (3.13%) 3,412,100 
AMBANK 2.94 +0.05 (1.73%) 2,059,800 
BIMB 3.87 -0.02 (0.51%) 160,000 
AFFIN 1.78 +0.02 (1.14%) 107,200 
ABMB 2.54 -0.01 (0.39%) 218,500 

  Be the first to like this.
 


APPS
I3 Messenger
Individual or Group chat with anyone on I3investor
MQ Trader
Stock Screener using Technical and Fundamental criteria
MQ Affiliate
Join the MQ Affiliate Program today to earn rewards
 
 

605  230  568 

ActiveGainersLosers
Top 10 Active Counters
 NameLastChange 
 FOCUS 0.06-0.005 
 GOCEAN 0.0450.00 
 MTOUCHE 0.285+0.005 
 TANCO-WB 0.07+0.02 
 PERMAJU 0.1450.00 
 TANCO 0.145+0.01 
 MINDA 0.145+0.02 
 UCREST 0.30+0.005 
 TAWIN-OR 0.065-0.005 
 CAREPLS 2.41+0.05 

FEATURED POSTS

1. MQ Trader - Introduction to MQ Trader Affiliate Program MQ Trader Announcement!

TOP ARTICLES

1. HOW PUMP AND DUMP SYNDICATES OPERATE IN BURSA, Please Avoid At All Costs, Calvin Tan Research THE INVESTMENT APPROACH OF CALVIN TAN
2. 木材价格暴涨,这家公司竟然没有人买?! Swim With Sharks
3. Are you an INTELLIGENT INVESTOR? You can beat Buffett with THIS STOCK with 100% return in 2 months! Ultimate Stock Tips
4. ARB Berhad – Not As Good As It Seems. Be Cautious. The 1994 Investor
5. U.S. Suffers Sharpest Rise in Poverty Rate in More Than 50 Years - Koon Yew Yin Koon Yew Yin's Blog
6. Calvin replies to CynicalCyan, THE INVESTMENT APPROACH OF CALVIN TAN
7. Number of Covid 19 cases solely depends on Government's efficiency - Koon Yew Yin Koon Yew Yin's Blog
8. World’s most vaccinated nation is spooked by Covid spike (Chinese-made Sinopharm vaccine widely used in Seychelles) News1
PARTNERS & BROKERS