Investment Highlights

• Industry loan growth moderated to 2.5% YoY in Aug 2021 contributed by a slowdown in household and non-household loans. Household loan growth slipped further to 3.4% YoY in Aug 2021 with all segments recording slower growth rates. Meanwhile, non-household loan growth eased to 1.2% YoY as the pace of working capital loans slowed down. YTD, the industry’s loans grew by 2.3% (annualised). With the slower pace of loans in June, July and Aug 2021 due to movement restrictions, we are now projecting a lower loan growth for the industry in 2021 of 3.0–4.0% (previously: 4.0–5.0%)

• Higher level of applications and approvals for both household and non-household loans in Aug 2021. We continue to expect loan applications and approvals to pick up pace after the announced easing of mobility restrictions for fully vaccinated individuals and the opening up of more economic sectors on 16 Aug 2021.

• CASA ratio remained stable at 31.8% despite the industry’s CASA growth continuing to taper to 11.7% YoY. LD ratio for the sector inched lower to 87.0% while the sector LCR slipped to 150.0% in Aug 2021.

• Stable impaired loans in Aug 2021 with GIL ratio sustained at 1.7%. The continued availability of repayment assistance to borrowers will mitigate the risk of loans turning impaired.

• Total provisions for the sector climbed by 1.7% MoM or RM577mil in Aug 2021. Banks continued to top up provisions (management overlays) as the percentage of banks loans under payment relief assistance climbed in July and early Aug 2021. With the gradual easing of mobility restrictions and opening up of more economic sectors starting 16 Aug, borrowers’ tight cash flow is likely to gradually ease. This will lead to a tapering in the number of new applications for payment relief assistance, removing the need for further top-ups in overlays. The easing of the restrictions will allow more businesses to operate and is poised to assist borrowers to eventually resume their normal loan repayments after payment assistance programmes end.

• 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. The US Treasury yields have recently continued to rise with 9 members of the FOMC in favour of an earlier rate hike in 2022 in the recent Fed meeting as compared to 7 earlier. Pressure for rate hikes is expected to also spill over to emerging markets, including Malaysia. Any increase in interest rates will be positive on banks’ interest income and margins.

Source: AmInvest Research - 1 Oct 2021