• Maintain OVERWEIGHT, Top Picks: Hong Leong Bank, Malayan Banking and AMMB. Feb 2022 banking system data showed a slight slowdown in momentum, with system loans growing 0.2% MoM (YoY: +4.7%). Loan demand continued to ease from both the household and non- household segments, reflecting the seasonally softer momentum earlier in the year. Asset quality remained robust, despite a spike in GILs from the mining & quarrying sector that pushed the system GIL ratio to 1.53%. We maintain our 2022 system loans growth forecast at 5.2% YoY.

• Feb 2022 system loans were up 0.2% MoM or 4.7% YoY. This was driven by working capital loans (+0.5%) and residential mortgages (+0.4%), as well as loans for personal use (+0.4%). These managed to offset the decreases from credit card services (-2.2%) and loans for other purposes (-1.8%). On a YoY basis, the main contributors were also working capital loans (+7.1%) and residential mortgages (+6.9%), along with loans for purchase of securities (+5.9%).

• Seasonally lower loan demand. On a 3-month moving average (3MA) basis, applications for loans shrank 9.9% MoM. In particular, applications from the household and non-household segments decreased by 10.9% and 8.1% respectively. Historically, loan applications tend to soften after the turn of the year, and only start picking up from March onwards. We believe the wave of new COVID-19 cases triggered by the highly infectious Omicron variant has also dampened sentiment.

• System deposits grew 1.2% MoM (+8.4% YoY). This was mainly driven by strong growth in other deposits (+3.6% MoM, +22.2% YoY). CASA deposits broadly tracked system deposits, growing 1% MoM and 8.4% YoY, while fixed deposits remained fairly static. As at end-Feb, the CASA ratio stood at 42.2% (Jan 2022: 42.0%), with LDR at 86.3% (Jan 2022: 87.2%).

• Asset quality remains robust despite the 5.7% MoM increase in system GILs. This was mainly driven by a 3-fold increase in GILs from the mining & quarrying sector, which is likely due to the impairment of lumpy corporate accounts. This led to a slight deterioration in the system GIL and LLC ratios, which at end-February stood at 1.53% (Jan 2022: 1.45%) and 123% (Jan 2022: 126%). YoY, GILs rose marginally by 0.3%, driven by impairments on loans for working capital (+9.7%).

• SME loans grew 0.4% MoM in Jan 2022 with the positive momentum seen in the manufacturing (+1.6%) and transport, storage & communication (+3.1%) sectors. YoY, SME loans increased by 5%, led by wholesale and retail trade, hotels & restaurants (+8.5%). With the central bank’s announcement on digital banking license winners soon to come, we are optimistic on another strong year for small and medium enterprise financing.

Source: RHB Research - 1 Apr 2022