Investment Highlights

• Banks’ 6M21 core calendarised earnings grew rose by 31.6% YoY after stripping out CIMB’s transformation cost of RM17mil and intangible asset (IA) write-off, coupled with its accelerated amortization of RM241mil in 2Q21 as well as RM1.15bil revaluation gains from the deconsolidation of Touch ‘n’ Go Digital (TNGD) in 1Q21. The improvement was also supported by higher total income.

• Net interest income (NII) was stronger for 6M21 underpinned by higher interest margins (NIM) from deposits’ optimisation and repricing after OPR cuts. Also, underlying non-interest income (NOII) was higher YoY. This was supported by the strong showing of the larger capitalised banks’ (Maybank, CIMB and Public Bank) NOII in 1Q21 with higher investment, trading and wealth management income. In 2Q21, treasury and wealth management income from unit trust sales were lower compared to 1Q21 for these banks. Most banks continued to conservatively book in provisions (overlays) in 2Q21. Nevertheless, provisions for loan losses were lower by 12.9% QoQ with lower impairment loan allowances of Maybank and CIMB. The results of banks were mostly within expectations. The earnings of Maybank, Public Bank, RHB Bank, Hong Leong Bank, Alliance Bank were within our expectation. CIMB’s core earnings were slightly above our forecast on lower-than-anticipated underlying operating expenses (opex) while BIMB Holdings’ earnings were below our estimate due to lower-than-expected fund-based income.

• The sector’s loan growth for 2Q21 slowed down to 4.0% YoY (1Q21: 4.1% YoY). Maybank’s loans grew at a faster pace of 4.1% YoY led by the expansion of consumer loans in Malaysia and Singapore while Indonesian loans continued to contract. Meanwhile, CIMB reported a flattish loan growth in 2Q21 with the expansion of loans in Malaysia offset by a contraction in Indonesia and Thailand due to the downsizing of commercial loans. Also, RHB, Hong Leong, Alliance Bank and BIMB Holdings’ loan growth decelerated on a YoY basis. Domestic loans of most banks continued to expand at a faster pace than the industry’s, which grew by 3.4% YoY.

• The sector's underlying net interest margin (NIM) continued to recover by 2bps QoQ to 2.31% supported by the continued reprising of liabilities post-OPR cuts and the optimisation of deposit mix through CASA expansion which lowered funding cost. The sector’s average CASA growth tapered to 15.2% YoY in 2Q21 vs. 23.5% YoY in 1Q21. Nevertheless, with the optimisation of deposit mix, the average CASA ratio (based on our stock coverage) improved marginally to 36.9% in 2Q21 vs. 36.7% in 1Q21. We maintain our OPR projection for 2021 of 1.75%.

Source: AmInvest Research - 8 Sept 2021