Macquarie Equities Research (MQ Research) summarised January’s banking statistics released by Bank Negara. Among the key highlights include the slowdown in both credit cash and credit card spend coupled with loan applications. Meanwhile, loans and deposits rose, and consumer-loan repayment trends remained stable. Although MQ Research remains constructive on banks post-Covid19, it expects a soft sentiment post quarter results.

MQ Research prefers CIMB and RHB with Public Bank as its defensive name.

MCO2.0: Hitting, but not hitting that hard.

• The tightening Covid-19 lockdown measures implemented on 13 Jan 2021 (MCO2.0) has had a noticeable impact on key banking statistics that MQ Research tracks, but the impact is substantially less severe when compared with 2020’s initial movement control order. Credit cash spend fell 15% m/m, partly due to the high-base December spend and is -19% y/y. Excluding foreign cardholders however (adjusting for local consumption) credit-card spend was down 15% y/y). Restricted business activities also impacted loan applications (-4% q/q), though it remains very high vs pre-Covid (+30% y/y) driven by residential properties (+62% y/y) and autos (+10% y/y).

• Consumer-loan repayment trends also remained relatively stable in January, falling 3.3% m/m, as some customers sought additional repayment assistance from banks and delinquency rates rose. This was clearly reflected in the banks 4QCY20 reporting, with a rise in consumer-targeted repayment assistance across most banks, most notably Maybank and RHB. But as MQ Research anticipated, Public Bank and Hong Leong Bank’s customers appear substantially more resilient. MQ Research expects further pressure on consumption and loan applications through February. But with restrictions eased through the month, in line with declining new daily infection numbers, MQ Research expects the MCO2.0 impact to moderate by March.

Impact

• Loans growth in January (+3.8% y/y) showed some signs of recovery, on stronger working capital demand from businesses. Residential mortgage loan growth remains very stable at +7% y/y while transport vehicle loans growth is decelerating to +5% y/y. At the same time, deposit rose to 5%, driven by current account savings account (CASA), following a short stall in December, CASA ratios broke new record high of 31.3%. This is encouraging for banks deposit repricing in 1Q21. Post-moratoria gross impaired loan (GIL) ratio has finally begun to emerge (1.6%), led by unsecured loans (1.8%) that are less able to secure repayment assistance. As GIL ratios climb, loan loss coverage ratios have begun to ease, but still remain near record highs 106%. Overall, the banking system remains very liquid with 88.1% loan-to-deposits and liquidity coverage ratio of 148%. Banks capital adequacy ratios continued to rise to record highs, with 14.9% common equity tier 1 (CET1).

Outlook

• Following relatively cautious messaging from the banks, MQ Research anticipates sentiment on banks to be soft post-results; all banks reported results last week with the exception of AmBank, which reported yesterday (Monday, 1 March), coupled with AmBank’s RM2.83 settlement. Nonetheless, MQ Research remains constructive on post-Covid recovery; reiterate RHB/CIMB as top overall sector picks with Public Bank as its preferred defensive name. Weak sentiment could present better entry levels.

Source: Macquarie Research - 2 Mar 2021