Investment Highlights

• Industry loan growth eased further to 3.4% YoY in Dec 2020 from 3.8% YoY in Nov 2020. Growth in household loans remained stable at 5.0% YoY while non-household loan growth continued to slip to 1.0% YoY. Loan expansion of 3.4% in 2020 was in line with our expectation of 3.0–4.0% growth. For 2021, we keep our loan growth projection of 4.0–5.0%.

• Pickup in growth of loan applications in Dec 2020 while loan approvals remained subdued. In Dec 2020, growth in industry loan applications was higher at 12.3% YoY vs. -5.1% YoY in Nov 2020. Dec 2020 saw an improvement in growth of loans applied by the agriculture, utilities, wholesale & retail trade, and restaurants & hotels, construction, real estate, finance, insurance and business activities, education, health & others as well as the household sectors.

• Weighted average lending rate declined but no changes to base rate. We maintain our OPR projection of 1.75% in 2021 for now. However, we see some downside risk to this expectation should the MCO be extended past 4 Feb with stricter restrictions. We believe that all eyes will be on the weeks before the next MPC meeting on 4 Mar 2021 for any signs of pickup in economic growth.

• Industry deposit growth stable at 4.5% YoY but growth in CASA moderated in Dec 2020. LD ratio for the sector remained stable at 87.6%. Correspondingly, the sector’s loan-to-fund ratio and the loan-to-fund and equity ratios was sustained at 82.5% and 72.0% respectively. Sector LCR eased slightly to 148.0% due to the lower LCR of commercial banks while that of the Islamic and investments increased compared to the preceding month. Industry CASA growth slipped to 19.3% YoY vs. 23.0% YoY in Nov 2020. Arising from this, the industry’s CASA ratio fell to 30.3%.

• Continued upticks in impaired loans after 6-month automatic moratorium while banks raised further pre-emptive provisions against future credit losses. The industry’s outstanding impaired loans in Dec 2020 climbed by 3.1% MoM or RM867mil. This came largely from higher impairments of household credits and loans to the wholesale & retail trade, and restaurants & hotels loans, construction, transport, storage and communication sectors. The industry’s total GIL rose for the 2nd consecutive month to 1.6% while NIL ratio increased marginally to 0.99%. Total provisions for the sector increased by 3.2% MoM or RM965.4mil in Dec 2020 as banks continued to set aside pre-emptive provisions against future credit losses. This led to the rise in sector’s loan loss cover to 107.5% vs. 107.4% in Nov 2020.

• Retain our OVERWEIGHT stance on the sector with our top 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 upgrade our call on ABMB to a BUY from HOLD (FV: RM2.80/share) due to the recent sharp retraction in share price.

Source: AmInvest Research - 2 Feb 2021