• OVERWEIGHT, Top Picks: Hong Leong Bank, Malayan Banking and AMMB. Loan growth momentum resumed in March after slowing down in February. System loans ticked up by 0.6% MoM (YoY: +4.6%). Demand for financing was strong as applications, on a 3-month moving average (3MA) basis, increased by 2.9% MoM. Asset quality remained resilient despite hefty impairments in the wholesale, retail, and restaurants & hotels sector. We maintain our system loans growth forecast at 5.2% for 2022, premised on the reopening of borders and pick-up in economic activity.

• Encouraging system loan growth. Mar 2022 loan growth was driven by loans to the household (+0.5% MoM, +4.9% YoY) and manufacturing (+1.8% MoM, +9.7% YoY) sectors. These were slightly offset by decreases in loans to the mining & quarrying (-9.5% MoM, -12.8% YoY) and agriculture (-2.1% MoM, -4.9% YoY) sectors. By purpose, small increments were recorded across the board, except for loans for construction purposes, which dropped by 0.8% MoM (YoY: -5.9%).

• Loan applications at record levels. System loan applications reached a new high of MYR98.6bn in Mar 2022 vs MYR94.2bn in Mar 2021, leading to a 2.9% MoM increase on a 3MA basis. In particular, applications from both households and non-households grew 5.9% and 1.3%. YoY, system applications were up 8.4%, also on a 3MA basis. Based on trends from previous years, we infer that the strong monthly performance could be attributed to seasonality, among other factors.

• System deposits increased 0.3% MoM (YoY: +7.2%), driven by growth in savings deposits (+0.8% MoM, +7.5% YoY). However, demand deposits contracted by 0.3% MoM (YoY: +5.9%), bringing CASA growth to +0.1% MoM (YoY: +6.4%). As at Mar 2022, system CASA ratio stood at 42.1% (Feb 2022: 42.2%), while system LDR was at 86.5% (Feb 2022: 86.3%).

• Asset quality still robust. In Mar 2022, system GIL ratio stood at 1.54% (Feb 2022: 1.53%). Specifically, lumpy impairments were seen in the wholesale, retail, restaurants & hotels sector (+7.5% MoM, +15.7% YoY). However, a lower LLC ratio of 115.7% (Feb 2022: 123.1%) was recorded on the back of lower provisions. This marks the first time since Sep 2021 that LLC was below 120%. For Jan-Mar 2022, system GILs rose 7.9% YTD on the sharp 2.6x increase in mining & quarrying impairments that lifted the sector NPL ratio to 15.6% (Dec 2021: 3.69%). We believe the higher mining & quarrying GILs were mainly from the oil & gas exposures.

• Small & medium enterprises (SME) loans grew 1.2% MoM, led by notable increases in loans to the wholesale, retail, restaurants & hotels (+1.2%) and construction (+3.1%) sectors. YoY, SME loans advanced 6.2%, with large contributions from the transportation (+26.9%) and manufacturing (+9.9%) sectors.

Source: RHB Research - 6 May 2022