Investment Highlights

• Industry loan growth accelerated to 3.3% YoY in Oct 2021 contributed by stronger growth of both household and non-household loans. Working capital loans continued to gain momentum. Household loan growth picked up pace to 3.7% YoY in Oct 2021. Meanwhile, non-household loan growth rose for the 2nd consecutive month to 2.9% YoY with a stronger pace of working capital loans. YTD, the industry’s loans has grown by 3.7% (annualised) within our projection of 3.0–4.0% for 2021.

• Higher level of applications and approvals for household loans in Oct 2021. After the easing of mobility restrictions and the opening up of economic sectors in Aug 2021, applications and approvals for household loans continued to improve. In contrast, the level of applications and approvals for non-household loans declined.

• CASA ratio remained stable at 31.7% despite the industry’s CASA growth continuing to taper to 9.4% YoY. LD ratio for the sector rose to 87.2% contributed by the stronger loan growth in Oct 2021. Correspondingly, the sector’s loan-to-fund ratio and loan-to-fund and equity ratio increased marginally to 81.6% and 71.1% respectively. Meanwhile, the sector’s LCR declined modestly to 153.0%.

• Lower impaired loans in Oct 2021 with GIL ratio improving to 1.5%. The industry’s outstanding impaired loans in Oct 2021 declined by 2.8% MoM or RM816mil. It was contributed by lower impairments in most sectors loans, including the household segment except for the construction, finance, insurance and business services sectors. The industry’s total GIL and NIL ratios improved to 1.5% and 0.94% respectively.

• Total provisions for the sector continued to climb by 0.3% MoM or RM114mil in Oct 2021. We believe that banks have continued to top up management overlays to be prudent on provisions. We gather that the initial commencement of the Pemulih moratorium on July 2021 saw applications for the financial assistance rising. On a comforting note, after the initial phase, new enrolments for the Pemulih moratorium have tapered. The URUS programme financial assistance is opened for applications from 15 Nov 2021 to 31 Jan 2022. Thus far, based on our channel checks, the take-up rate for URUS has been low as the eligibility criteria for the programme have been stringent. URUS requires borrowers to be either unemployed or have lost income by 50.0% unlike Pemulih, where there were no such conditions were required. Applications for the Pemulih moratorium are approved automatically after submission.

• Retain our OVERWEIGHT stance on the sector with our top BUYs on RHB Bank (fair value RM6.90/share), Maybank (FV RM9.90/share) and CIMB Group (FV RM6.20/share). On the smaller cap banks, we like Alliance Bank (fair value RM3.80/share) due to the undemanding valuation, improving outlook on asset quality and normalising dividend payouts.

Source: AmInvest Research - 6 Dec 2021