System loans accelerated further to 4.7% YoY while deposits tapered to 5.8%. That said, leading indicators and asset quality remained robust. For NIM, we expect it to be fairly stable in FY22 as better asset reinvestment yield and OPR hike to offset the competitive deposit taking landscape. In our view, the sector’s risk-reward profile is skewed to the upside as valuations are undemanding and we are only at the cusp of an OPR hike upcycle with economic recovery, which benefit banks. Retain OVERWEIGHT; BUY calls include: Maybank, Public, RHB, BIMB, Affin.

Loans growth in Jan-22 accelerated further to 4.7% YoY (Dec: +4.5%) led by both the household (HH) and business (Biz) segments, which grew 4.7% (Dec: +4.3%) and 5.3% (Dec: +5.0%) respectively. In HH, the growth was relatively broad base, coming from home, auto, personal, and credit card loans. As for Biz, it was driven by working capital financing. Overall, system loans growth trumped our +4.0-4.5% full-year FY22 estimates; as such, we revise it up to 4.5-5.0%, aided by the momentum of economic recovery.

Leading indicators continued to be in positive territory, with loan applications up 10% YoY (Dec: +27.9%); this is backed by the HH segment (+13.1% vs Dec: +25.4%) but credit appetite for Biz softened quite considerably (+4.2% vs Dec: +32.4%). That said, loans approval was up 24.4% (Dec: +27.0%) as lending to both HH (+29.7% vs Dec: +24.8%) and Biz remained accommodative (+16.5% vs Dec; +29.8%).

Deposits growth slowed to 5.8% YoY (Dec: +6.3%) due to slower CASA and other deposit growth. Overall, Jan-22’s loan-to-deposit ratio inched up 1ppt MoM to 87% (vs Feb-18’s peak of 89%). We gathered the current deposit taking landscape continues to be competitive.

Asset quality showed resiliency as gross impaired loans (GIL) ratio stayed flat MoM at 1.44%; the HH segment was unchanged at 1.03% while Biz ticked down 1bp. We expect GIL ratio to rise but would not be overly concerned since banks have already made heavy pre-emptive provisions in FY20-21 and we reckon credit risk has been adequately priced in by the market, looking at the fairly high NCC assumption utilized for FY22-23 by both us and consensus (still above the normalized pre-Covid-19 run rate but below FY20-21’s level).

Interest spread widened. The average lending rate and 3-month board fixed deposit rate fell 1bp and 2bp MoM respectively. In turn, the interest spread expanded by 1bp. That said, we expect net interest margin (NIM) to be broadly stable as better asset re investment yield and OPR hike to offset the competitive deposit taking landscape.

Maintain OVERWEIGHT. We believe the sector’s risk-reward profile is skewed to the upside as valuations are undemanding and we are only at the cusp of an OPR hike upcycle with economic recovery, which benefit banks. As such, we remain bullish and employ a rather broad stock buying strategy in 1H22. For large-sized banks, we like Maybank (TP: RM9.40) for its strong dividend yield and Public Bank (TP: RM4.80) for its large potential headroom to perform management provision overlay writebacks. For mid-sized banks, RHB (TP: RM7.00) is favoured for its high CET1 ratio and attractive price-tag. For small-sized banks, BIMB (TP: RM3.45) and Affin (TP: RM2.35) are preferred; we like the former for its positive structural growth drivers and better asset quality while the latter has special dividends potential after concluding the disposal its asset management arm.

Source: Hong Leong Investment Bank Research - 2 Mar 2022