• OVERWEIGHT, Top Picks: Malayan Banking, Hong Leong Bank, CIMB and AMMB. Jan 2022 banking system data continued to build on the recovery trajectory seen since Aug 2021, with a MoM loan growth of 0.5% (YoY: 4.7%). Loan demand from the household and non-household segments moderated slightly, due to seasonal factors. Asset quality continued to improve, with system GIL ratio at 1.45% and LLC at 131%. For now, we maintain our 2022 system loans growth forecast of 5.2% YoY, as we await further clarity on interest rate environments locally and globally.

• Jan 2022 system loans grew 0.5% MoM or 4.7% YoY. This was driven by residential mortgages (+0.6%) and strong contributions from mining & quarrying (+9.1%), as well as electricity, gas & water supply (+5.9%). These offset the 4.7% contraction seen in the “other sectors” segment. On a YoY basis, the main contributors were also residential mortgages (+6.9%), along with utilities (+17.2%) and transport, storage & communications (+16.1%).

• Softer loan demand. Applications for loans, on a 3-month moving average (3MA) basis, declined by 2.2% MoM. In particular, applications from the household and non-household segments shrank 1.6% and 2.5% respectively. This could indicate a normalisation in loan demand back to pre-pandemic levels, as Jan 2022’s total applications of MYR74.1bn was already nearing the 2019 monthly average of MYR72.2bn.

• System deposits contracted by 0.7% MoM, led by withdrawals in fixed deposits (-0.1%). However, CASA deposits grew 0.6%, bringing the Jan 2022 LDR to 87.2%, from 86.1% in the previous month. System CASA ratio was at 42%, vs 41.8% in Dec 2021.

• Asset quality remained resilient despite the 0.6% MoM increase in system GILs, driven by impairments on loans for working capital purposes (+3.1%). This led to a small uptick in system GIL ratio to 1.45%, from 1.44% in Dec 2021. However, LLC grew to 131% from 129% in the previous month. YoY, GILs declined 5.5%, led by a decrease in impaired loans related to the purchase of transport vehicles (-24.1%).

• Small and medium enterprise (SME) loans grew by 0.7% MoM in Dec 2021, with momentum seen in the mining and quarrying (+4.4%) and manufacturing (+1.4%) sectors. In 2021, SME loans grew by 4.6%, slightly ahead of the 2021 system loans growth of 4.5%. We anticipate another strong year for SME loans, given the impending introduction of SME- focused digital banks into the banking system.

Source: RHB Research - 4 Mar 2022