Investment Highlights

• Industry loan growth improved slightly to 6.5% YoY in Oct 2022 from 6.4% YoY in Sept 2022. Household loans growth moderated to 6.3% YoY with repayments outpacing loan disbursements. In contrast, non-household loans expanded at a faster pace of 6.9% YoY in Oct 2022. Lending for working capital loans increased marginally to 8.6% YoY vs. 8.5% YoY in the preceding month. YTD, the industry’s annualised loans have grown by 6%, within our expectation of 5–6% growth for 2022. For 2023, we expect a slower loan growth of 4-5%.

• Loan applications and approvals slowed down further in Oct 2022. Both the levels of household and non-household loan applications continued to trend lower.

• Expect another 25bps OPR hike to 3.00% in Jan 2023. This will raise the benchmark interest rate to 3.00% (pre-pandemic level).

• Slight pickup in CASA growth to 4.5% YoY. CASA ratio holding up at 30.5%. We continue to expect CASA to grow modestly amid the reopening of the economy with higher interest rates which will shift deposits towards FDs with the more attractive time deposit rates offered through the recent campaigns. The stronger deposit competition is likely to persist at least until the end of 2022 looking at the stronger loan growth of banks and year-end deposit campaigns. LD ratio for the sector inched higher to 85.9% following the increase in loan growth. Correspondingly, the sector’s loan-to-fund ratio rose slightly to 82% while the loanto-fund and equity ratio increased marginally to 71.6%. The sector’s LCR slipped to 141% from 152% in the preceding month, contributed by the decrease in LCRs of commercial, Islamic and investment banks.

• Uptick in loan impairments of 0.8% MoM or RM278mil in Oct 2022. The sector GIL ratio remained steady at 1.8% while NIL ratio was sustained at 1.1%.

• Total provisions for the sector declined by 0.3% MoM or RM124mil in Oct 2022. Owing to higher loan impairments, the loan loss coverage ratio including regulatory reserves for the sector slipped to 114.2%.

• Foreign holdings of MGS declined further to 34.8% in Oct 2022 vs. 35.9% in Sept 2022.

• Retain our OVERWEIGHT stance on the sector with top BUYs on RHB Bank (fair value RM7.40/share), CIMB Group (fair value: RM6.70/share) and Bank Islam (fair value: RM3.20/share). Replacing Maybank with Bank Islam as our top pick given its higher upside potential.

Source: AmInvest Research - 5 Dec 2022