Investment Highlights

• Industry loan growth moderated to 6.4% YoY in Sept 2022 from 6.8% YoY in Aug 2022. Household loans growth remained stable at 6.6% YoY while non-household loans expanded at a slower pace of 6.2% YoY in Sept 2022 partly contributed by higher base effect. For household sector loans, hire purchase financing continued expand at a faster pace while lending for working capital loans eased to 8.5% YoY vs. 9.4% YoY in the preceding month. YTD, the industry’s annualised loans expanded by 5.8%, within our expectation of 5–6% growth for 2022.

• Slower loan applications and approvals in Sept 2022. Sept 2022 saw lower levels of both household and non-household loan applications.

• Expect another 25bps hike in OPR to 2.75% in Nov 2022. Also in Jan 2023, we see a likelihood of a further 25bps increase in the benchmark interest rate bringing the OPR to 3.00% (pre-pandemic level).

• CASA growth eased further to 3.7% YoY leading to a lower ratio of 30.6%. The trend of slowdown in CASA growth is likely to persist in the near term with the shift in deposits towards FDs amid the more attractive and higher rates offered for time deposits through recent campaigns. LD ratio for the sector slipped slightly to 86% due to slower loan growth while LCR rose to 153% following the higher ratios of commercial, islamic and investment banks.

• Slight decline in loan impairments of 0.4% MoM or RM141mil in Sept 2022. The sector GIL ratio remained steady at 1.8% while NIL ratio was sustained at 1.1%.

• Total provisions for the sector rose marginally by 0.1% MoM or RM37mil in Sept 2022. Including regulatory reserves, the loan loss coverage ratio for the sector stood at 115.2%.

• The market indicative yield for the 10-year MGS rose by 47bps MoM to 4.46% in Sept 2022, tracking the direction of global bond yields. Foreign holdings of MGS declined slightly to 35.9% in Sept 2022 vs. 36.1% in Aug 2022.

• Retain our OVERWEIGHT stance on the sector with our top BUYs on RHB Bank (FV: RM7.40/share), CIMB Group (FV: RM6.70/share) and Maybank (FV: RM9.60/share).

Source: AmInvest Research - 1 Nov 2022