Investment Highlights

• Industry loan growth moderated to 3.4% YoY in June 2021 attributed to a slowdown in household and non-household loans. Household loan growth slipped to 5.2% YoY in June 2021 (May 2021: 6.1% YoY) with most segments recording slower growth rates. Meanwhile, non-household loans were slightly slower in pace at 0.8% YoY. YTD, the industry’s loans grew by 3.2% (annualised).

• Slowdown in growth of loan applications and approvals in June 2021 with lower levels of applications and approvals for household loans.

• CASA ratio eased marginally to 31.7%. Industry CASA growth tapered to 14.0% YoY. LD ratio for the sector inched lower to 87.5% while the sector’s LCR climbed to 149.0% in June 2021.

• Continued availability of repayment assistance (6-month moratorium) for individual and SME borrowers 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.

• June 2021 saw higher impaired loans by 1.9% MoM or RM539mil. Nevertheless, the industry’s GIL and NIL ratio remained steady at 1.6% and 1.0% respectively. The increase came from higher impairments of loans for purchase of transport vehicles as well as financing for construction and working capital purposes.

• Total provisions for the sector rose slightly by 3.8% MoM or RM1.2bil. This is likely to still see banks conservatively topping up provisions (overlays) for the latest 6-month moratorium as well as revisions to macro-economic variables (MEVs) arising from the economic impact of stricter lockdown measures starting June 2021 following the outbreak of a new wave of Covid-19. Nevertheless, we do not expect these additional overlays to be substantial in amount, unlike that seen in 2020. We are keeping to our expectation that credit cost for banks in 2021 though elevated will still be lower than 2020.

• 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 (FV 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 Aug 2021