Investment Highlights

• Banks’ 3Q22 core calendarised earnings grew strongly by 9.9% QoQ after stripping out the impact of Cukai Makmur and CIMB Group’s exceptional item net of tax and minority interest (MI) of RM6mil, and modification gain. The improved 3Q22 earnings were driven by higher total income supported by a stronger net interest income (NII) and noninterest income (NOII). The increase in NII was contributed by higher loan volume and net interest margin (NIM) in 3Q22 following 2 OPR hikes (25bps in July 2022 and a further 25bps in Sept 2022). NOII rose QoQ due to Maybank’s higher unrealised gains on financial assets, investments and fx profits as well as the improvement in RHB’s treasury income. Generally, fx profits were higher for most banks, including Public Bank in 3Q22.
• 9M22 underlying earnings of banks climbed 13.8% YoY contributed by higher NII of 8.5% YoY from expansion of loans and NIM coupled with lower loan impairment allowances, partially offset by a weaker non-interest income (NOII) from lower investment and trading income. The overall operating expenses of banks grew 4.2% YoY driven largely by Maybank’s higher personnel, establishment, marketing, admin and general expenses.
• Results of banks were within expectations. The results of all banks (Maybank, Public Bank, RHB, Hong Leong Bank, CIMB, Alliance Bank and Bank Islam) were within expectations. AMMB’s results were within consensus estimates.

• Sector overall loan growth accelerated in 3Q22 with a higher growth rate of 7.8% YoY (2Q22: 6.1% YoY) (Exhibit 4). Maybank’s overall loans gained traction to register a higher growth of 8.2% YoY in 3Q22. This was supported by growth of loans in all key markets (Malaysia, Singapore and Indonesia). Meanwhile, gross loans of CIMB picked up pace to 9% YoY contributed by the stronger momentum of consumer, commercial and wholesale banking loans in 3Q22. Public Bank’s overall loans accelerated to 5.7% YoY with a stronger domestic and international loan growth.
• The underlying NIMs of all banks expanded in 3Q22. The sector’s average NIM climbed by 7bps QoQ to 2.37% in 3Q22 compared to +4bps in 2Q22 (Exhibit 5). This was contributed by faster pace of loan growth and higher quantum of OPR hike of 50bps cumulatively in 3Q22 vs. only 25bps in 2Q22. Both Alliance and Public Bank recorded the highest uplift on NIM by 13bps QoQ. The full year sensitivity impact of Public Bank’s loan portfolio to rate hikes in now higher at 5bps compared to 3-4bps earlier. The other notable improvements were Hong Leong Bank and CIMB’s increase in interest margins (both by 8bps QoQ). The average CASA ratio (based on our stock coverage) decreased slightly to 37.1% in 3Q22 from 38% in the preceding quarter. We expect another 25bps hike in the OPR at the next MPC meeting in January 2023 increasing from 2.75% to 3.0% (pre-pandemic level).

Source: AmInvest Research - 7 Dec 2022