Investment Highlights

• Industry loan growth picked up pace to 3.8% YoY in Jan 2021 from 3.4% YoY in Dec 2020 with stronger non-household loan growth. Growth in household loans remained stable at 4.9% YoY while non-household loan growth gained traction to 2.3% YoY contributed by growth of SME loans. YTD loans grew 4.8% (annualised) in 2020, which is within our loan growth projection of 4.0–5.0% for FY21.

• Slower pace of loan applications and approvals in Jan 2021. In Jan 2021, growth in industry loan applications eased to 9.7% YoY vs. 12.3% YoY in Dec 2020. The level of loan applications was lower in Jan 2021 as applications from the household sector fell.

• Weighted average lending rate slipped 3bps MoM to 3.96% but no changes to base rate. We maintain our OPR projection of 1.75% in 2021 for now. We see some downside risk to this expectation should the economic recovery turns slower than expected. We expect the OPR to be maintained at 1.75% at the coming MPC meeting on 4 Mar 2021.

• Industry deposit growth accelerated to 5.0% YoY with a stronger growth in CASA. LD ratio for the sector rose to 88.1% due to the acceleration of loans. Sector LCR was sustained at 148.0%. Industry CASA growth accelerated to 21.4% YoY, lifting CASA ratio to 31.3%.

• Continued upticks in impaired loans as banks set aside further pre-emptive provisions against future credit losses. The industry’s outstanding impaired loans in Jan 2021 increased by 2.5% MoM or RM722mil. The increase came largely from higher impairments of household loans while the increase in impairments of non-household loans (agriculture, manufacturing, the wholesale & retail trade, and restaurants & hotels loans, construction, transport, storage and communication, finance, insurance and business services sectors’ loans) was smaller comparatively. The industry’s total GIL inched higher to 1.6% while NIL ratio rose slightly to 1.01%. Total provisions for the sector increased by 1.1% MoM or RM341mil in Jan 2021 as banks continued to aside pre-emptive provisions against future credit losses. On a comforting note, the quantum of provisions in Jan 2021 was lower than all the 3 months in 4Q2020.

• Retain our OVERWEIGHT stance on the sector with top BUYs on Hong Leong Bank (fair value RM20.30/share), RHB Bank (FV RM6.80/share), Maybank (FV RM9.80/share) and CIMB Group (RM5.50/share). We favour the larger systematic banks (Maybank and CIMB) to ride on the economy recovery in 2021 and banks with undemanding valuations trading at attractive P/BVs (RHB Bank). Also, we like Hong Leong Bank with its strong top line growth, robust profit contribution from associates and resilient asset quality.

Source: AmInvest Research - 2 Mar 2021