Investment Highlights

• Industry loan growth sustained at 3.9% YoY with slower non-household loans offset by household loans’ accelerated growth. Household loan growth rose to 6.2% YoY, supported by loans for purchase of passenger vehicles and residential properties. Meanwhile, non-household loan growth decelerated to 0.6% YoY due to slower pace of working capital loans. YTD, loans grew by 3.6% (annualised).

• Improved growth of loan applications and approvals in Apr 2021. Apr 2021 saw stronger growth in loan applications and approvals for household loans. For non-household loans, applications and approvals declined YoY.

• Industry CASA growth remained robust, leading to CASA ratio of 31.8%. LD ratio for the sector was stable at 87.7% while the sector LCR stood at 152.0%.

• Maintaining our expectation for OPR at 1.75% in 2021. While the latest MCO will have some knock-on effects on our 2021 GDP growth, we see it as less restrictive compared to the full lockdown imposed on 18 Mar 2020. With more economic sectors allowed to operate albeit at 60% operating capacity, we see a lower drag on the GDP growth in 2Q21 vs 2Q20. Hence, this is anticipated to have lesser pressure for further cuts in the interest rate.

• Continued availability of targeted repayment assistance and unutilised provision buffers built up from the conservative front-loading of provisions by banks since last year to cushion against the impact of MCO 3.0. Under the recently announced Pemerkasa+ stimulus, repayment assistance (3-month moratorium or reduction of 50% instalment for 6 months) continues to be a targeted one where borrowers will need to opt in rather than a blanket moratorium implemented last year. Hence, 2Q2021 results will not see a repeat of the significant modification loss reported by banks in 2Q 2020.

• Lower impaired loans and provisions in Apr 2021. The decrease of impaired loans came largely from lower impairments of most segments of household loans. The industry’s total GIL and NIL ratios remained steady at 1.6% and 0.96% respectively.

• Retain our OVERWEIGHT stance on the sector with our top BUYs on RHB Bank (fair value RM6.90/share), Maybank (FV RM10.40/share) and CIMB Group (RM5.60/share). We favour banks with expected improvement in regional performance from the gradual economic recovery and banks with undemanding valuations.

Source: AmInvest Research - 2 Jun 2021