June 2022 system loans grew by 5.6% YoY (+0.7% MoM), which is in line with our CY22 industry growth target of 5.0-5.5% as household loans are expected to taper from more rate hikes to come. Sequential improvements in disbursements, repayments and loan applications are fuelled by heightened post-Raya activities, but mainly from more vibrant business activities. The reopening of borders is expected to support previously affected sectors. Gross impaired loans (GIL) remained stable at 1.65% (+1 bps) amidst the lapse of repayment assistance programs. However, as deposits (+7.2% YoY, +0.8% MoM) are expected to remain augmented with higher rate expectations keeping depositors sticky, we raise our CY22 deposits expectations to 6.5-7.0% growth (from 5.0-5.5%) with CASA-mix likely to take a turn then. We anticipate two additional 25 bps hikes in each of the upcoming Bank Negara Malaysia’s Monetary Policy Committee (MPC) meetings. We maintain our OVERWEIGHT call on the sector and lean towards high dividend stocks for shelter amidst recession-pulled sentiment. MAYBANK (OP; TP: RM11.05) is our favourite pick as the dividend champion (7-8%) while AFFIN (OP; TP: RM2.45) is noteworthy for its strengthening fundamentals and possible special dividend payments from the disposal of its asset management and insurance units.
Loans pace picking up. In June 2022, system loans reported a 5.6% YoY growth in comparison to June 2021 which was hurt by the implementation of MCO 3.0. Meanwhile, we saw a MoM increase by 0.7% likely from post-Raya injections. Adding to this could be better clarity on interest rate trends which allowed businesses to better gauge their appetite for higher financing costs. Business loans (+0.8%) outpaced household loans (+0.6%) during the month, mainly led by manufacturing and retail activities. Disbursements (+12%) and repayments (+5%) also saw strong MoM upticks. For now, we continue to maintain our CY22 annual loans growth of 5.0- 5.5%. There could be some slight easing owing to heightened interest rates which might make loans demand more subtle.
Applications backlog clearing (+42% YoY, +18% MoM). June 2022 total applications made a comeback post May’s lull as prospective borrowers mull against the month’s OPR hike. On a monthly basis, businesses (+25%) did show greater traction against new household applications (+14%) as expected, given the moderating influx of housing loans. (refer to Table 4-5 for breakdown of system loan applications).
Impairments stabilising. Total impaired loans rose in tandem with the higher loans base (+7% YoY, +1% MoM) but industry GIL stayed at stable levels of 1.65% (May 2022: 1.64%, Jun 2021: 1.62%). We continue to perceive the current standing to be within normal levels amidst GIL staying at <1.50% with repayment assistance programs being active in prior years.
Impairments now at normalised levels. Total impaired loans for May 2022 (+8% YoY, +5% MoM) brought industry GIL ratio to 1.64% (Apr 2022: 1.57%, May 2021: 1.59%). Pre-Covid, GIL ranged 1.60-1.80%. Hence, we deem this to be within the “normal rate” as past repayment assistance programs delayed and distorted the timing of defaults for at-risk accounts. Industry loan loss coverage continued to moderate, at 109.1% (Apr 2022: 113.4%, May 2021: 109.9%), as provisioning needs eased, albeit not at a large scale as writeback considerations are still sidelined (refer to Table 6-7 for breakdown of system impaired loans).
CASA levels constant. CASA remained stable at 30.8% in Jun 2022 (May 2022: 30.8%, Jun 2021: 30.3%) as depositors could be holding back any migration to longer term deposits for later when rates could be more attractive. The growth in deposits (+7.2% YoY, +0.8% MoM) remains unyielding as consumer spending could remain tepid amidst inflationary concerns. On top of the said higher yielding rates expected in 2HCY22, we raise our CY22 deposits growth expectations to 6.5-7.0% (from 5.0-5.5%) as deposit accounts could remain lofty. LDR came in at 90.8% (May 2022: 90.2%, Jun 2021: 87.5%).
Maintain OVERWEIGHT on the Banking Sector. While indicators may be on the precautionary side, we stand to believe banking stocks will remain resilient. We anticipate a further two 25 bps OPR hikes which although might pressure household affordability, may not be too detrimental to business loans as they work to deliver economic growth. Previously affected sectors are also expected to make a comeback with the reopening of borders. Still, we are aware that investors could be slighted by capital downside risks, no thanks to ongoing macro uncertainties (i.e. prolonged supply chain disruption, global recession). Hence, we continue to recommend strong dividend yielders to provide portfolio safety. Our large cap top pick is MAYBANK (OP; TP: RM11.05) which we highlight for stellar dividend returns (7-8%) paired by its commendable asset quality readings (GIL: <1.9%, below listed peers’ average of 2.0%) in spite of being the leader in loans and deposits share. For the smaller cap banks, we believe AFFIN (OP; TP: RM2.45) presents opportunities with the return in earnings growth prospects thanks to its AIM22 initiatives. With the disposal of AHAM and AXA Affin to be completed in 3QCY22, we do not discount special payouts which could bump up an already decent expected yield of 5-6%.
Source: Kenanga Research - 1 Aug 2022
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MAYBANKCreated by kiasutrader | Aug 26, 2024
Created by kiasutrader | Aug 26, 2024