Jan 2020 loans moderated to +3.5% YoY underpinned by a resilient Household at +5% YoY. While loans growth will be a challenge given the growing Covid-19 pandemic, we believe that soft interest rates would support Households to stay resilient with support from fiscal push on the cards. And when the noise around the pandemic subsides, loans momentum will likely recover. Our sector call remains OVERWEIGHT as stocks’ valuations are largely attractive. In fact, we have OUTPERFORM calls on most banks under our coverage such as: ABMB (TP: RM2.90), AMBANK (TP: RM4.20), BIMB (TP: RM4.95), CIMB (TP: RM5.60), MAYBANK (TP: RM9.05), MBSB (TP: RM1.10), PBBANK (TP: RM20.70) and HLBANK (TP: RM16.45) while AFFIN (TP: RM1.85), and RHBBANK (TP: RM5.85) are at MARKET PERFORM.
The moderation in loans continued as Jan 2020 loans slowed to +3.5% YoY (Dec 2019: +3.9% YoY) to RM1,770b. Business moderated to +1.9% but Households (HH) showed resilience at a modest +5% YoY. The moderation in Business was led by a slight shrinkage in working capital (-0.4% YoY) while HH continue to be resilient on account of robust mortgage (+7.2% YoY) but dragged by falling HP of 0.8% YoY. The moderation in loans can also be attributed to shrinking disbursements of 4.3% YoY outpaced by rebound in repayments of +2.5% YoY as Business disbursements fell 6% YoY. Overall net financing in the system moderated to +4.4% YoY, dragged by loans but corporate bonds continued to be resilient at +8% YoY. Looking ahead, moderation in loans is expected to continue given the rising pandemic and economic uncertainty. Loans applications shrinkages were broad-based with Business at -15% YoY and HH at -14% YoY. Fall in Business applications were underpinned by the fall in purchase of securities (-39% YoY) and construction (-30% YoY) while the slump in HH was underpinned by falling demand for mortgage loans (-20% YoY). Given the uncertainty prevailing in the global economy, approvals for both Business and HH fell 4% YoY and 6% YoY, respectively. Loans approval rate in the banking system fell 5ppt to 48% for Jan 2020.
While asset quality showed improvements since Aug 2019, Jan 20 saw deterioration as GIL saw uptick of 8bps YoY and 5bps MoM to 1.56%. The deterioration was broad with both Business and HH GIL posting uptick of 3bps and 2bps, (from Dec 2019) to end at 0.97% and 0.59%, respectively. We do not expect significant uptick in GIL in the coming months given the moratorium and R&R facilities provided by the banks during this pandemic period. While GIL surged +9% YoY, loan loss provisions in the banking system fell 4% YoY, thereby loan loss coverage fell 220bps to 87%. Given the moderate loans, deposits for Jan 2020 ended at +3% YoY to RM1,961b. CASA saw a +6% YoY improvement (vs. FDs of -0.4% YoY mitigating funding cost pressure given the recent OPR cuts. Liquidity remained ample with Loan-to-Deposit Ratio (LDR) and Loan-to-Fund Ratio (LTF) at 90% and 83%, respectively, with excess liquidity shedding 40bps to 9.7% and unlikely to aggravate funding costs pressure as credit demand moderates.
Moving forward, we expect that accommodative interest rates will continue to support a resilient Household, mitigating the moderation in Business spending. Given the banks’ modest target for 2020 (after the recent results season) we expect system loans to end at 4-4.5% YoY (more on downside bias) driven by resilient Household (5.0 – 5.4%) and Business (2.0 – 2.5%) coming from a fiscal push expected in 2H 2020. The soft interest rate regime is expected to support loans growth coupled with ease of applications. While the uptick in impaired loans is a concern, it is still below its 5-year peak of 1.67% in Feb 2015.
Valuations of our banking universe are attractive and undemanding with most at OUTPERFORM: - ABMB (TP: RM2.90), AMBANK (TP: RM4.20), BIMB (TP: RM4.95), CIMB (TP: RM5.60), MAYBANK (TP: RM9.05), MBSB (TP: RM1.10), PBBANK (TP: RM20.70) and HLBANK (TP: RM16.45). AFFIN (TP: RM1.85), and RHBBANK (TP: RM5.85) are at MARKET PERFORM. Our Top Pick is CIMB and MAYBANK benefitting from: (i) fiscal push (domestic and regionally), (ii) accommodative interest rates prevailing, and (iii) resilient Households plus attractive dividend yields of ~5% and ~8%, respectively.
Source: Kenanga Research - 5 Mar 2020
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RHBBANKCreated by kiasutrader | Aug 26, 2024