• Industry loan growth moderated to 4.6% YoY in Mar 2022 attributed to slower non-household loans while household loan growth continued to rise. Household loans grew at a faster pace of 4.9% YoY driven by stronger expansion of loans for purchase of securities, passenger cars and credit cards. Meanwhile, non-household loans eased to 4.1% YoY with a slowdown in working capital loans. YTD, the industry’s annualised loans have grown by 5% in line with our expectation of 5–6% growth for 2022 supported by GDP growth of 5.6%.

• CASA growth eased to 6.4% YoY in Mar 2022. Nevertheless, CASA ratio for the sector remained stable at 31.9%. LD ratio for the banking system inched higher to 86.5% amid a lower deposit growth of 5.2% YoY. The sector’s LCR was sustained at 151%.

• Mar 2022 saw the banking system’s impaired loans increasing at a slower rate of 1.5% MoM or RM443.7mil. The industry’s loan provisions continued to hold up with GIL and NIL ratio at 1.5% and 0.9% respectively.

• Total provisions for the sector continued declining for the 2nd consecutive month. It fell by 4.6% MoM or RM1.6bil in Mar 2022. Loans that were under relief assistance (RA) continued to taper. The amount of retail loans exiting RA programmes and resuming regular loan repayments appeared to be better than expected. However, in the near term, banks will continue to be prudent on provisions for potential credit losses with room seen on write-backs of management overlays ahead.

• No near-term threats to the operations of domestic commercial banks from the award of 5 digital banking licences recently by Bank Negara Malaysia. This is in view of digital banks’ products/services that will be targeted at the underserved and hard-to-reach segments comprising retail and micro SMEs which differ from the focus segments of commercial banks. Also, local banks have already upped the ante in digital offerings and technologies to keep up with innovation and disruptions from the consortiums awarded with the digital banking licences. The value and volume of commercial banks’ digital transactions have been on a rising trend. For the JV between Boost Holdings and RHB Bank, which has been awarded the licence, operations of the digital bank will only kick-start in 2H2023 with no earnings impact in 2022. Earnings from the consortium in 2023 are expected to be minimal or insignificant.

• Retain our OVERWEIGHT stance on the sector with our top BUYs of RHB Bank (fair value RM7.10/share), CIMB Group (fair value: 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 the sector due to the interest rate uptrend cycle which will benefit the banks in terms of interest income as well as room for potential write-backs in management overlays going forward. Also, valuations for RHB Bank, CIMB Group, Alliance Bank and Bank Islam remain inexpensive, trading below FY23F P/BV of 1.0x.

Source: AmInvest Research - 6 May 2022