Investment Highlights

• Industry loan expanded at a faster pace of 4.3% YoY in Nov 2021 driven by stronger growth in both household and nonhousehold loans. Growth in working capital loans continued to rise after reopening of the economy. Household loan growth increased to 4.1% YoY in Nov 2021 supported by higher disbursements of loans for purchase of passenger cars, residential properties and credit cards. Growth in non-household loans surged to 4.7% YoY with a stronger momentum for working capital loans. YTD, the industry’s loans have grown by 4.3% (annualised) in line with our projection of 3.0–4.0% for 2021. We expect a higher industry loan growth of 5.0–6.0% for 2022 underpinned by stronger economic growth with improvement in private sector expenditure and exports.

• Level of loan applications and approvals continued to rise in Nov 2021 after the easing of mobility restrictions and reopening of economy. The levels of both applications and approvals for household and non-household loans climbed in Nov 2021.

• Improved CASA growth of 11.1% YoY in Nov 2021 resulting in higher CASA ratio of 32.0% for the banking system. LD ratio for the sector eased to 86.5% amid the stronger deposit growth in Nov 2021. Correspondingly, the sector’s loan-to-fund ratio and loan-to-fund and equity ratio declined marginally to 81.1% and 70.8% respectively. Meanwhile, the sector’s LCR slipped to 145.0% as at end Nov 2021 attributed to the drop in LCRs of commercial and Islamic banks.

• Impaired loans decreased with GIL ratio stable at 1.5%. The industry’s outstanding impaired loans continued to decline after the reopening of economy. In Nov 2021, it fell further by 2.3% MoM or RM654mil. It was mainly driven by the lower impairments of manufacturing, construction and household sectors’ loans. The industry’s total GIL and NIL ratio was sustained at 1.5% and 0.91% respectively. The sector’s loan loss cover rose further to 126.7% in Nov 2021 contributed by the decline in impaired loans.

• Total provisions for the sector decreased by 0.4% MoM or RM141mil in Nov 2021. We believe that this has been contributed by the continued tapering of new applications for financial assistance following the reopening of the economy.

• 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 - 3 Jan 2022