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Author: kltrader   |   Latest post: Thu, 25 Feb 2021, 9:52 AM


Malaysia Banks – Decent November Stats; RHB Remains Top Pick

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Happy New Year to all investors! Our daily newsletter resumes from today.

Bank Negara Malaysia (BNM) has released banking system data for November 2020, providing the second post-moratorium data point. There were some encouraging data as repayments remained stable and consumption remained resilient along with the healthy growth in CASA despite the resumption of loan payments. Macquarie Equities Research (MQ Research) maintains RHB Bank as its top banking stock pick while expecting Public Bank and Hong Leong to remain buoyant.

Key Points

  • Bank Negara has released banking system data for November 2020.
  • Post moratorium repayments held steady for the 2nd month; loan growth dipped to 3.8% year-on-year (y/y) despite a healthy consumer loan appetite.
  • Consumption remained resilient with +1.1% month-on-month (m/m) in credit card spend. Impaired loans creeping up across all segments to 1.53%.

The Positive

  • November banking stats provided a second post-moratoria data point. Repayments remain stable at ~90% of pre-Covid levels, with a slight sequential dip (partially) explained by increased take-up of opt-in repayment assistance. Credit card spend is a useful proxy for consumption, and the +1.1% sequential improvement was encouraging considering the Conditional Movement Control Order (CMCO) restrictions remained unchanged in November. Further emphasising the consumer resilience is the sustained strength in applications for consumer loans. The recent extension of the sales tax exemption on completely knocked down (CKD) vehicles till mid-2021 should help sustain the aforementioned demand.
  • Overall, the banking system remains liquid with an 88.3% loan-to-deposit ratio and a liquidity coverage ratio of 150%. Furthermore, current account savings account (CASA) growth remains robust (+23% y/y) despite the resumption of loan repayments. The sector CASA ratio has risen to a record high 30.7%, as borrowers eschew fixed deposits in the low-interest rate environment. This has helped stabilise banks’ margins following the 125bps interest rate cuts seen in 2020. Capital ratios remain more than ample with a common equity tier 1 (CET1) of 14.5%.

The Negative

  • As expected, loan impairments began to rise in November (+6.9% m/m) following the cessation of the blanket moratorium, with gross impaired loans (GIL) rising to 1.53%; historically still very low. While overall impaired loans ratios remain relatively low, gross impaired loans rose sharply vs a very low base: Auto +30% m/m, Housing +19% m/m, unsecured lending +18% m/m, and share financing +13% m/m. Nonetheless, this is not yet alarming given loan impairments were effectively frozen throughout the 6-month automatic moratorium.
  • While consumer loan demand was robust, non-consumer loan applications remained relatively soft, despite a modest sequential improvement in November. MQ Research anticipates the asymmetrical recovery in the economy, coupled with increased risk aversion from banks, will cap non-consumer loan growth in 2021. Corporate loan growth fell to +2.1% y/y diverging from retail loan growth of +5% y/y.


  • MQ Research reiterates RHB Bank (RM6.35 TP, OP) as its top pick, affirmed by the recent announcement of an interim dividend of 10 sen/share (25% payout on 9M20). MQ Research expects loan impairments to accelerate in coming months. But with ample provision front-loading in FY20, MQ Research expects the market will focus on post-Covid return on equity (ROE)/valuations for the banks. Thus, MQ Research anticipates the sector will remain relatively buoyant, especially quality names like Public Bank and Hong Leong Bank.

Source: Macquarie Research - 6 Jan 2021

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