Investment Highlights

• Industry loan growth eased further to 3.8% YoY in Nov 2020 from 4.3% YoY in Oct 2020. Growth in household loans moderated marginally to 5.0% YoY while non-household loan growth slowed down to 2.1% YoY. YTD loan growth decelerated to 3.4% annualised in line with our expectation of a 3.0–4.0% growth for 2020. For 2021, we maintain our expectation for the industry’s loans to grow by 4.0–5.0%.

• Slightly lower level of loan applications in Nov 2020 while loan approvals contracted slightly with a decrease household loans approved. In Nov 2020, industry loan applications registered a lower contraction of 5.1% YoY vs. -6.1% YoY in Oct 2020.

• Higher weighted average lending rate while the weighted base rate decreased marginally. We continue to expect no further rate cuts in 2021 with banks’ interest margin anticipated to recover from the earlier rate cutS aided by the reprising of liabilities.

• 10-year MGS yield rose in Nov 2020 amidst domestic uncertainties. The market indicative yield for the 10-year MGS rose by 11.8bps MoM to 2.74% in Nov 2020 attributed to uncertainties surrounding the parliament voting of Budget 2021.

• Stable industry deposit growth with expansion of CASA continued to be robust. Industry deposit growth remained stable at 4.4% YoY. CASA growth continued to the robust, expanding by 23.0% YoY vs. 22.2% YoY in Oct 2020. The industry’s CASA ratio continued to climb to 30.7%. LD ratio for the sector was sustained at 88.3%.

• Continued upticks in impaired loans after 6-month automatic moratorium while banks raise pre-emptive provisions against potential credit losses. The industry’s outstanding impaired loans in Nov 2020 increased by 8.3% MoM or RM2.1bil. By sector, it was largely due to higher impairments of household loans. In terms of loans purpose, the increase was broad-based across most segments while the impairments for working capital loans were lower MoM. The industry’s total GIL climbed to 1.5% vs. 1.4% in the preceding month while NIL ratio increased to 0.95%. Total provisions for the sector increased by 4.7% MoM or RM1.34bil in Nov 2020 as banks continued to set aside pre-emptive provisions against potential credit losses. This led to the sector’s loan loss cover slipping to 107.4% in Nov 2020.

• RHB Bank recently declared a single-tier interim cash dividend of 10 sen/share after Maybank and BIMB announced interim dividends in their recent 3Q20 results announcement. Also, RHB proposed to establish a dividend reinvestment plan (DRP) to provide shareholders with the option to reinvest future dividends into additional shares.

• Retain our OVERWEIGHT stance on the sector with BUYs on Hong Leong Bank (fair value RM19.30/share), RHB Bank (FV RM6.15/share) and Maybank (FV RM9.50/share) to ride on the economic recovery in 2021. We have revised our FVs for Public Bank, CIMB and ABMB to RM19.00, RM4.10 and RM2.80 (previously: RM17.70, RM3.70 and RM2.40), ascribing higher P/BV of 1.5x, 0.7x and 0.7x respectively by lowering the risk premium (See Exhibit 23). For non-banks, we continue to like Hong Leong Financial Group (HLFG) (FV RM19.00/share) that will leverage the improved fundamentals of Hong Leong Bank.

Source: AmInvest Research - 4 Jan 2021