Investment Highlights

• Industry loan growth tapered to 3.1% YoY in July 2021 attributed to slower household loans amid stricter movement restrictions with a lockdown imposed in Selangor and Kuala Lumpur. Household loan growth slipped further to 4.2% YoY in July 2021 (June 2021: 5.2% YoY) with most segments recording slower growth rates. Meanwhile, non-household loans picked up to 1.7% YoY with a stronger pace of working capital loans. YTD, the industry’s loans grew by 3.0% (annualised).

• Slower loan applications and approvals in July 2021. Nevertheless, we expect loan applications and approvals to gain momentum from Sep 2021 onwards with the announced easing of mobility restrictions for fully vaccinated individuals and the opening up of more economic sectors on 16 Aug. The government has allowed activities to resume in the manufacturing, construction, mining and quarrying sectors with the capacity of operations based on the percentage of vaccinated employees.

• CASA ratio remained stable at 31.7% despite the industry’s CASA growth tapering to 12.9% YoY. LD ratio for the sector inched lower to 87.2% while the sector LCR continued to climb to 152.0% in July 2021.

• Uptick in impaired loans, mainly household loans in July leading to slightly higher GIL ratio of 1.7%. Nevertheless, we expect the continued availability of repayment assistance (6-month moratorium) for individual and SME borrowers to keep banks’ asset quality stable until end-2021. The Pemulih moratorium, which required borrowers to opt in, commenced on 7 July.

• Total provisions for the sector rose slightly by 2.5% MoM or RM859mil. Banks continued to conservatively top up provisions (additional overlays) in 2Q21. This was due to the economic impact of stricter lockdown measures which started in June 2021 following the outbreak of new wave of Covid-19. In July and early Aug 2021, we gather that the percentages of most banks loans that were under payment relief assistance have increased with the take-up of Pemulih moratorium. Nevertheless, in the later part of August, applications for payment relief programmes have started to taper. With the opening up of more economic sectors allowing businesses to operate and tapering in applications for repayment assistance, it is likely that there will not be a need for substantial increase in overlays in 2H21.

• Retain our OVERWEIGHT stance on the sector with our top BUYs on RHB Bank (fair value RM6.80/share), Maybank (FV RM9.90/share) and CIMB Group (FV RM5.80/share). We favour banks with expected improvement in regional performance from the gradual economic recovery and banks with undemanding valuations.

Source: AmInvest Research - 2 Sept 2021