Investment Highlights

• Industry loan growth eased slightly to 4.3% YoY in Oct 2020 from 4.4% YoY in Sept 2020. Growth in household loans moderated marginally to 5.1% YoY while non-household loan growth was sustained at 3.2% YoY. YTD loan growth was 3.7% annualised in line with our expectation of a 3.0–4.0% growth for 2020. For 2021, we expect the industry’s loans to register a higher growth of 4.0–5.0%.
• Interest margins of banks are expected to recover with no further interest rate cuts. On 3 Nov 2020, BNM kept the OPR unchanged at 1.75%. With no further interest rate cuts expected in 2021, banks’ interest margins are anticipated to recover from the earlier OPR reduction aided by the reprising of liabilities. With the industry’s deposit competition staying muted, banks' funding cost of banks is likely to continue to improve.
• More stable MGS yields in recent months and banks’ FVOCI reserves remained high, leaving opportunities to still monetise gains on FVTOCI securities. MGS yields have turned more stable with no rate cuts in Sep and Nov 2020. We continue to see room for banks to monetize gains from the FVOCI securities when the opportunity arises as their FVOCI reserves remained high from the earlier favourable movements in MGS yields. This will support NOII of banks.
• CASA continued to be robust, lifting banks’ CASA ratio further. CASA expanded by 22.2% YoY in Oct 2020 vs. 20.5% in Sep 2020, increasing CASA ratio to 30.2%. Sector LDR and LCR remained healthy at 88.2% and 153.0% respectively.
• Uncertainties on asset quality remains but are comforted by banks’ continued action of proactively booking forwardlooking provisions in the form of management overlays. This is in addition to provisions from changes to the macroeconomic factors (MEFs) in 2020 for potential credit losses, leaving a cleaner slate for recovery on banks’ earnings moving into 2021. After the end of Sep 2020, the percentage of loans in Malaysia under the repayment assistance programmes for banks ranged between 8–15%, and this was much lower than that seen in the 6-month automatic blanket moratorium. The industry’s total GIL and NIL are still stable at 1.4% and 0.9% respectively. Oct 2020 saw a rise in provisions by 5.5% MoM for future credit losses, and we continue to expect banks to further front load their provisions, conservatively booking more provisions as management overlays in the remaining months of 4Q2020. This is anticipated to lead to a cleaner slate for recovery on banks’ earnings moving into 2021.
• Maybank and BIMB have declared interim dividends in their recent 3Q20 results announcement. This should lead to improved sentiments on banking stocks.
• Upgrade our sector call to OVERWEIGHT from NEUTRAL with BUYs on Hong Leong Bank (FV: RM19.30/share), RHB Bank (FV: RM6.15/share) and Maybank (FV: RM9.50/share) to ride on the economic recovery in 2021. For non-banks, we like HLFG (FV: RM19.00/share) which will leverage the improved fundamentals of Hong Leong Bank.

Source: AmInvest Research - 2 Dec 2020