Investment Highlights

• Industry loans gained momentum with stronger growth rate of 6.8% YoY in Aug 2022. This was contributed by pick up in pace of household loans to 6.5% YoY while non-household loans grew at a faster pace of 7.2% YoY. Mortgage and loans for purchase of vehicles continued to support the growth of household sector loans. Meanwhile, lending for working capital loans rose to 9.4% YoY, contributed by loans to SMEs. YTD, the industry’s annualised loans expanded by 5.6%, within our expectation of 5–6% growth for 2022.

• Slower loan applications while the pace of loan approvals improved in Aug 2022. Aug 2022 saw higher loan demand from households partially offset by lower levels of non-household loan applications.

• CASA growth slipped further to 6.1% YoY leading to lower CASA ratio of 31.4%. LD ratio for the sector was sustained at 87% while LCR fell to 141% following the lower ratios of commercial, Islamic and investment banks.

• Slight uptick in loan impairments of 0.2% MoM or RM91mil in Aug 2022. The increase was contributed by higher impairment of loans to the finance, insurance, business activities, agriculture, construction, wholesale, retail trade, restaurants and hotels sectors. Nevertheless, the sector GIL ratio remained steady at 1.8% while NIL ratio decreased marginally to 1.1%.

• Total provisions for the sector rose by 1.1% MoM or RM384mil in Aug 2022. Excess capital buffers remained healthy at RM126.7bil.

• The 10-year MGS yield rose by 9bps MoM in Aug 2022 in line with the trend of the regional bond yields which were impacted by more hawkish US Fed rate hike expectations. Nevertheless, the MGS yield movement was still less volatile compared to 1H2022.

• Retain our OVERWEIGHT stance on the sector with our top BUYs on RHB Bank (fair value RM7.40/share), CIMB Group (fair value: RM6.70/share) and Maybank (FV RM10.30/share).

Source: AmInvest Research - 4 Oct 2022