Investment Highlights

• Banks’ 9M21 core calendarised earnings grew rose by 31.9% YoY. This was after stripping out CIMB Group’s transformation/restructuring cost of RM73mil, intangible asset (IA) write-off, its accelerated amortization of RM324mil, RM1.15bil revaluation gains from the deconsolidation of Touch ‘n’ Go Digital (TNGD) and the impairment of goodwill for Thailand amounting to RM1.2bil. Also, for the normalised 9M21 earnings, we have stripped out the modification (mod) loss of banks net of tax and unwinding. This included the mod loss from the Pemulih moratorium which commenced on July 2021. The improved 9M21 earnings were supported by higher total income.

• Net interest income (NII) for banks was stronger for 9M21 underpinned by higher interest margin (NIM). 9M21 saw lower funding cost for banks from deposits’ optimisation and repricing after OPR cuts. As for non-interest income (NOII), it declined marginally YoY for 9M21. The lower NOII was contributed by the slowdown in treasury and markets income from a lower investment and trading income in 3Q21. Additionally, stockbroking income was softer QoQ in 3Q21. This was in contrast to the strong NOII in 1Q21 where the larger capitalised banks’ (Maybank, CIMB and Public Bank) recorded higher investment, trading and wealth management income.
  Most banks continued to conservatively book in provisions (overlays) in 3Q21. With the exception of Maybank, which recorded higher provisions in 3Q21 after further topping management overlays by RM547mil largely for its retail loan portfolio, the other banks’ provisions were lower QoQ. Provisions for loan losses for 9M21 declined by 25.4% YoY largely contributed by the lower impairment loan allowances of Maybank and CIMB. The results of most banks (Maybank, Public Bank, Hong Leong, Bank Islam) were within expectations while 3 banks (CIMB, RHB and Alliance Bank) exceeded expectations. CIMB and Alliance Bank’s core earnings were above our estimates on lower-than-anticipated operating expenses (opex) and provisions while for RHB Bank, its Islamic banking income was above our expectation.

• The sector's underlying net interest margin (NIM) declined marginally 2bps QoQ to 2.26%. The average impact on banks’ NIM from the medication losses arising from Pemulih moratorium was 11bps (Exhibit 4). The sector’s average CASA growth continued to taper to 10.5% YoY in 3Q21 vs. 16.1% YoY in 2Q21. Nevertheless, with the optimisation of deposit mix, the average CASA ratio (based on our stock coverage) improved marginally to 37.2% in 3Q21 vs. 36.8% in 2Q21. We continue to expect the OPR to be sustained at 1.75% until 1H2022 with the likelihood of a rate hike of 25bps in 2H2022.

Source: AmInvest Research - 8 Dec 2021