Investment Highlights

• Industry loan growth moderated to 5.5% YoY in Nov 2022 from 6.5% YoY in Oct 2022. Household loan growth slipped to 6% YoY with repayments outpacing loan disbursements. Non-household loans expanded at a slower pace of 4.7% YoY in Nov 2022 compared to 6.8% YoY in the preceding month. Lending for working capital loans registered a slower growth rate of 5.5% YoY (Oct 2022: 8.5% YoY). YTD, the industry’s annualised loans have grown by 5.4%, within our expectation of 5–6% growth for 2022. For 2023, we expect a slower loan growth of 4-5%.

• Loan applications and approvals continued to trend downwards in Nov 2022 with slower growth rate. Both the levels of household and non-household loan applications were lower in Nov 2022 compared to Oct 2022.

• Expect another 25bps OPR hike to 3.00% in Jan 2023. This will raise the benchmark interest rate to 3.00% (pre-pandemic level).

• Further slowdown in CASA growth to 1.3% YoY. Nevertheless, the banking system’s CASA ratio remained stable at 30.6%. Deposit growth eased to 5.3% YoY in Nov 2022 vs. 8.3% YoY in Oct 2022 in tandem with the slower loan expansion. LD ratio for the sector remained steady at 86.2%. Correspondingly, the sector’s loan-to-fund was stable at 82.2% while loan-to-fund and equity ratio held up at 71.7%. The sector’s LCR rose to 147% from 141% in the preceding month. This was contributed by the increase in LCRs of commercial and investment banks while that for Islamic banks was sustained.

• Smaller increase in the industry’s outstanding impaired loans of 0.3% MoM or RM101mil in Nov 2022. The sector GIL ratio remained steady at 1.8% while NIL ratio was sustained at 1.1%.

• Total provisions for the sector rose by 1.8% MoM or RM630mil in Nov 2022. The sector’s loan loss cover (LLC) climbed to 98.1% in Nov 2022 following the increase in provisions. Including regulatory reserves, LLC was 116.5% compared to 114.2% the previous month.

• Retain our OVERWEIGHT stance on the sector with top BUYs on RHB Bank (fair value RM7.40/share), CIMB Group (fair value: RM6.70/share) and Bank Islam (fair value: RM3.20/share).

Source: AmInvest Research - 3 Jan 2023