Investment Highlights

• Industry loan accelerated to 4.7% YoY in Jan 2022 driven by stronger growth in household loans while working capital loans continued to gain traction. Household loans expanded at faster pace of 4.7% YoY in Jan 2022 driven by stronger growth in mortgage loans, HP, loans for purchase of securities and higher outstanding for credit cards. Meanwhile, nonhousehold loans grew by 4.6% YoY with momentum for working capital loans continuing to be strong. YTD, the industry’s annualised loans have grown 6.4%, in line with our projected growth of 5.0–6.0% for 2022 premised on circa 1x GDP growth.

• CASA tapered to 8.3% YoY in Jan 2022. CASA ratio for the banking system stood at 32.0%. With loans outpacing deposit growth, LD ratio for the sector rose to 87.2%. Correspondingly, the sector’s loan-to-fund ratio inched higher to 81.4% while the loan-to-fund and equity ratio was 70.7%. The sector’s LCR slipped marginally to 152.0% as at end-Jan 2022 attributed to the drop in commercial, Islamic and investment banks’ liquidity ratios.

• Marginally higher impaired loans with GIL ratio stable at 1.4%. The industry’s total GIL and NIL ratios remained stable at 1.4% and 0.89% respectively. GIL ratio stayed low as only a portion of loans under repayment assistance (RA) had expired in Jan 2022 and repaid. We gather that for RA loans which expired in Jan 2022, the percentage of loans with borrowers making repayments was high. Thus far, the take-up of URUS financial assistance has remained low. We expect the industry GIL ratio to remain steady until 1H2022 as the broad repayment assistance (including the Pemulih moratorium) will only be expiring by end-June 2022. Thereafter, we anticipate an uptick in industry GIL ratio to ≤ 2.0%. On a comforting note, banks have been building up provision buffers since 2020. We expect provisions of banks to decline moving forward with the loans under financial assistance trending down.

• Total provisions for the sector increased by 2.1% MoM or RM730mil in Jan 2022. Banks continued to set aside conservative provisions for potential credit losses.

• Retain our OVERWEIGHT stance on the sector with our top BUYs of RHB Bank (fair value RM7.10/share) and Maybank (FV RM10.00/share). On mid-cap banks, we like Alliance Bank (fair value RM4.20/share) and Bank Islam (fair value: RM3.70/share). On CIMB (fair value: RM6.50/share), the recent share price weakness from news flow on a payment glitch has seen the stock now trading at attractive levels of 0.8x FY22/23 P/BV. The group has already conservatively provided for a significant portion of potential losses of RM281mil in 4Q21 and the payment processing error is not likely to further materially weigh on earnings ahead. Fundamentals remained intact with higher ROE and lower credit cost in FY22. We advocate buying on dips for this stock.

Source: AmInvest Research - 4 Mar 2022