Investment Highlights

• Industry loan growth was sustained at 3.9% YoY in May 2021 with stable household loan growth while growth in nonhousehold loans remained muted. Household loan growth grew by 6.1% YoY in May 2021 (Apr 2021: 6.2% YoY) while nonhousehold loans expanded by 0.9% YoY with working capital loan growth continued to be subdued. Year to date, the industry’s loans rose by 3.6% (annualised).

• Slowdown in growth of loan applications and approvals in May 2021 with slower pace of applications and approvals for household loans.

• Stable CASA ratio of 31.8%. CASA growth is expected to remain robust in 2H21 with the availability of the EPF’s i-Citra withdrawals under the Pemulih economic stimulus package. LD ratio for the sector was stable at 87.7% while the sector LCR slipped to 137.0% from 152.0% in Apr 2021.

• No rate cut expected at the next MPC meeting on 8 July 2021. We are maintaining our expectation for the OPR to be at 1.75% for the rest of 2021.

• The continued availability of repayment assistance (6-month moratorium) for individual and SME borrowers is expected to keep banks’ asset quality stable until the end of 2021. For borrowers that have opted in for the moratorium, there will be a freeze in the staging of their loans.

• May 2021 saw higher impaired loans by 1.9% MoM or RM539mil. Nevertheless, the industry’s GIL and NIL ratios remained steady at 1.6% and 0.98% respectively.

• Total provisions for the sector rose slightly by 0.4% MoM or RM145mil in May 2021. The provision buffers built up by banks since last year remained largely unutilized, thus are anticipated to cushion against the impact of the latest lockdown. On the latest 6-month moratorium, it is possible to still see banks conservatively topping up provisions (overlays). Nevertheless, we do not expect these additional overlays to be substantial, unlike that seen in 2020. This on the expectation that the economy is anticipated to progress towards recovery with the gradual opening of more economic sectors after achieving herd immunity against Covid-19 through vaccinations.

• 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 - 1 Jul 2021