Investment Highlights

• Industry loan growth eased to 3.7% YoY in Feb 2021 from 3.8% YoY in Jan 2021 due to slower non-household loans. Growth in household loans stood at 5.1% YoY while non-household loan growth decelerated to 1.8% YoY on higher repayments which outpaced disbursements. YTD loans grew 3.0% (annualised).
   
• Slower pace of loan applications and approvals in Feb 2021. In Feb 2021, industry loan applications contracted by 15.4% YoY vs. +9.7% YoY in Jan 2021, reflecting the shorter working days. The level of loan applications was lower in Feb 2021 compared to the preceding month as applications from the household and non-household sectors fell.
   
• Weighted average lending rate and base rate were sustained at 3.97% and 2.42% respectively. We maintain our OPR projection of 1.75% in 2021.

• Industry deposit growth accelerated to 5.2% YoY with a stronger growth in CASA. LD ratio for the sector eased to 87.7% due to the acceleration in deposits. Sector LCR was stable at 147.0%. Industry CASA growth rose to 24.8% YoY vs. 24.1% YoY in Jan 2021. This led to a slightly higher industry CASA ratio of 31.4%.

• Decline in impaired loans while banks set aside further provisions against future credit losses. The industry’s outstanding impaired loans in Feb 2021 declined by 0.5% MoM or RM141mil. The decrease came largely from lower impairments of household loans. The industry’s total GIL rose was sustained at 1.6% while NIL ratio remained at 1.01%. Total provisions for the sector increased by 0.8% MoM or RM260mil in Feb 2021 as banks continued to aside provisions against future credit losses. The quantum of increase in provisions continued to trend lower. The sector’s loan loss cover stood at 107.4%.

• Retain our OVERWEIGHT stance on the sector with our 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 a strong line topline growth, robust profit contribution from associates and resilient asset quality.

Source: AmInvest Research - 2 Apr 2021