Investment Highlights

• Industry loan growth rose to 2.9% YoY in Sep 2021 contributed by stronger growth of working capital loans for businesses. Household loan growth moderated further to 3.2% YoY in Sept 2021. Meanwhile, non-household loan growth climbed to 2.6% YoY with a stronger pace of working capital loans. YTD, the industry’s loans grew by 3.3% (annualised). This was within our industry loan growth projection in 2021 of 3.0–4.0%.

• Expect no change to OPR at 1.75% in the upcoming Monetary Policy Committee (MPC) meeting on 3 November 2021. We continued to expect the OPR to be sustained at 1.75% for the rest of 2021 with the likelihood of a rate hike of 25bps in 2H2022.

• Lower impaired loans in Sep 2021 with GIL ratio improving to 1.6%. Banks continued to be prudent in provisions which saw an increase in allowance of RM327mil set aside for potential credit losses in Sep 2021.

• The average impact to banks from the one-off imposition of “Cukai Makmur” (additional 9% tax to 33%) applied on profits in excess of RM100mil is a circa 9–10%. As it is only a one-time tax rate hike, we expect investors to eventually turn their attention to the improving fundamentals of banks (recovery plays) which will benefit from a stronger economic growth. We continue to see prospects of improving total income supported by a pick-up in loans growth and potential interest rate hikes benefiting banks’ NIMs. Additionally, banks’ asset quality is anticipated to improve ahead, hence requiring lower provisions.

• Additional funding for SMEs under Budget 2022 to assist businesses impacted by pandemic. This will mitigate the risk on asset quality of banks. Earlier, a loan repayment assistance programme to individual borrowers under the B50 income category under URUS was announced. This provided options to retail borrowers to either opt for: i) a 3-month interest waiver; or ii) 3-month interest waiver together with reduced instalments for 24 months and lower interest rates for unsecured personal loans/financing and credit cards. For SMEs, additional funding from BNM was announced under Budget 2022. We expect the additional funding support to alleviate cash flow difficulties of SMEs impacted by the pandemic. Additional funding included the upsized Targeted Relief and Recovery Facility (TRRF) by RM2bil bringing the total allocation to RM8bil. Meanwhile, allocation for the Agrofood Facility (AF) was increased by RM500mil to RM2bil in total. Also, a RM1bil Business Recapitalisation Facility (BRF) will be available to recapitalise businesses with high gearing and leverage impacted by Covid-19.

• 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). On Alliance Bank, we roll forward our valuation to FY23 and raise our FV to RM3.60/share from RM2.90/share.

Source: AmInvest Research - 1 Nov 2021