Investment Highlights

• Industry loan growth picked up pace to 5.2% YoY in Feb 2023 (Jan 2023: 4.9% YoY), contributed by a stronger momentum of non-household loans. Working capital loan growth gained traction to register a stronger growth rate of 4.5% YoY in Feb 2023 (Jan 2023: 3.9% YoY). Non-household loans grew 4.4% YoY in Feb 2023 (Jan 2023: 4% YoY). Meanwhile, household loan growth was stable at 5.7% YoY.

• Surge in growth rates of loan applications and approvals in Feb 2023. Feb 2023 saw higher levels of both household and non-household loan applications and approvals compared to Jan 2023.

• Growth of low-cost deposits remain subdued with CASA ratio holding up at 29.7%. Deposits continued to accelerate to 7.5% YoY in Feb 2023 vs. 7% in Jan 2023, resulting in LD ratio inching lower to 84.5%.

• The sector’s LCR increased to 153% in Feb 2023 from 147% in the preceding month. This was contributed by higher LCRs of commercial, Islamic and investment banks.

• The industry’s outstanding impaired loans increased by 2.1% MoM or RM734mil in Feb 2023. This was driven by upticks in impairments of loans to most segments except the finance, insurance and business activities sector. The industry’s GIL ratio inched higher to 1.8% from 1.7% in the preceding month. This was in line with our expectation of upticks in the banking system’s GIL ratio after the expiry of loans under the broad repayment assistance programmes. Meanwhile, NIL ratio remained steady at 1.1%.

• Total provisions for the sector rose slightly by 0.5% MoM or RM156mil in Feb 2023. The sector’s loan loss cover (LLC) slipped to 95.8% in Feb 2023 (Jan 2023: 97.4%) following the increase in impaired loans.

• The yield for 10-year MGS climbed by 11bps MoM to 3.91% in Feb 2023 following the trend of bond yields regionally. The increase was driven by the tightening of monetary policy with the market pricing higher US Fed funds rate and stronger economic data in the US. Our economic team expects the 10-year MGS yield to end 2023 between 3.8%-4%. Hence, we do not foresee the substantial marked-to-market losses on revaluation of securities portfolio incurred by banks in 2022 to be repeated in 2023.

• Retain our OVERWEIGHT stance on the sector with top BUYs on RHB Bank (fair value RM7.10/share), CIMB Group (fair value: RM6.50/share) and Alliance Bank (fair value: RM4.40/share).

Source: AmInvest Research - 3 Apr 2023