Investment Highlights

• Industry loan growth was sustained at 4.7% YoY in Feb 2022 supported by a stable expansion rate of household and non-household loans. Household loans grew by 4.7% YoY in Feb 2022 driven by growth in most segments except personal loans which stayed subdued. Meanwhile, non-household loans expanded at a moderately faster pace of 4.7% YoY with good traction in working capital loans. YTD, the industry’s annualised loans climbed by 4.1%.

• Modest improvement in CASA growth to 8.4% YoY in Feb 2022 with CASA ratio stable at 31.9%. LD ratio for the sector improved to 86.2% with a stronger deposit growth of 6.5% YoY. The sector’s LCR slipped marginally to 151.0% as at end-Feb 2022 attributed to the drop in LCRs of commercial banks.

• Further uptick in impaired loans. The industry’s outstanding impaired loans increased by 5.7% MoM or RM1.58bil in Feb 2022. By segment, it was largely contributed by higher impairments of loans to the mining and quarrying, construction and household sectors.

• The industry’s GIL ratio inched up to 1.5% from 1.4% in the preceding month while the NIL ratio increased slightly to 0.87%. The GIL ratio remained low with only a portion of loans under broad repayment assistance having expired. The take-up of URUS thus far continued to stay 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 the asset quality ratio for the sector to ≤ 2.0% in 2H2022 amid the transition towards targeted repayment assistance.

• Total provisions for the sector fell by 0.3% MoM or RM121mil in Feb 2022. Provisions in 2022 are expected to trend lower as the number of new applications for relief assistance (RA) has tapered. In the near term, banks are expected to still hold on to the bulk of the conservative provision buffers built up since 2020 until greater visibility on the repayment behaviour of their consumer and SME loan borrowers. We continue see room for write-backs in provisions, including management overlays due to the tapering of financial assistance to borrowers.

• Retain our OVERWEIGHT stance on the sector with our top BUYs of RHB Bank (fair value RM7.10/share), CIMB (FV RM6.50/share) and Maybank (FV RM10.00/share). On mid-cap banks, we like Alliance Bank (FV RM4.20/share) and Bank Islam (FV RM3.70/share). We remain positive on banks due to the expected improvement in their net interest income with the interest rate uptrend benefitting underlying NIMs while provisions are projected to be lower for loan losses with the decline in RA for borrowers. Also, valuations for RHB Bank, CIMB, Alliance Bank and Bank Islam are undemanding, trading at below 1.0x P/BV for FY23.

Source: AmInvest Research - 4 Apr 2022