Investment Highlights

• Industry loan growth moderated to 5% YoY in Mar 2023 (Feb 2023: 5.2% YoY), attributed to a slower pace of household loans while growth of non-household loans was stable. Mar 2023 saw household loan growth slipped to 5.4% YoY from 5.7% YoY in Feb 2023. Meanwhile, non-household loan growth was stable at 4.4% YoY. Working capital loans grew by 4.9% YoY in Mar 2023.

• Slowdown in growth rates of loan applications and approvals in Mar 2023. Mar 2023 saw a slower growth of both household and non-household loan applications and approvals compared to Feb 2023.

• Expect no rate hike with the OPR maintained at 2.75% at the next monetary policy committee (MPC) meeting on 3 May 2023. With the continued tapering of 3-month KLIBOR rate coupled with the recent softer trade (exports) growth, we anticipate that an OPR increase is likely to be still paused at the next MPC meeting on 3 May 2023.

• CASA growth remained slow. The banking system’s CASA ratio inched lower to 29.2% in Mar 2023 vs. 29.7% in Feb 2023. Overall deposits for the sector decelerated to 7% YoY in Mar 2023 vs. 7.5% in Feb 2023, resulting in the LD ratio inching higher to 85%.

• The sector’s LCR increased to 157% in Mar 2023 from 153% in the preceding month, contributed by the higher LCRs of commercial, Islamic and investment banks.

• The industry’s outstanding impaired loans fell by 0.4% MoM or RM156mil in Mar 2023. This was driven largely by lower impairments of household loans. Mar 2023 saw a decrease in impairment of loans for purchase of residential properties, personal financing and credit cards. The industry’s GIL ratio remained steady at 1.75%. Meanwhile, NIL ratio continued to hold up at 1.1%.

• Total provisions for the sector declined by 0.5% MoM or RM175mil in Mar 2023. Provisions for the banking sector as at endMar 2023 were marginally lower by 0.5% compared to Dec 2022. The sector’s loan loss cover (LLC) was sustained at 95.8%.

• Retain our OVERWEIGHT stance on the sector premised on undemanding valuations with the sector trading at 0.9x FY23F P/BV, attractive dividend yield of 6.1%, improving NOII with stronger investment and trading income ahead coupled with lower provisions with banks expected to gradually release their management overlays. We maintain our top BUYs on RHB Bank (fair value RM6.70/share), CIMB Group (fair value: RM6.50/share) and Alliance Bank (fair value: RM4.20/share).

Source: AmInvest Research - 2 May 2023