Banking Sector To Ride On Economic Recovery – MIDF

MIDF Research is positive on the banking sector with its improving net interest margin (NIM), stronger loans growth and possible writebacks. - Bloomberg pic.

The research house said both business and retail loans are maintaining their strong growth trajectory

Kuala Lumpur – Malaysian Industrial Development Finance (MIDF) Research is positive on the banking sector with its improving net interest margin (NIM), stronger loans growth and possible writebacks in the second half of the calendar year 2022 (2HCY22).

According to Malaysian National News Agency (Bernama), in a note Friday (04 Feb), MIDF also favours the sector’s long-term outlook which is premised on the lasting benefits of structural optimisation undertaken by individual banks which includes cost optimisation measures, current account savings account (CASA) outreach efforts and balance sheet restructuring/de-risking exercises.

“While there (is the) expectation of a deterioration in asset quality in the first half of the calendar year 2022 (1HCY22), we believe that this has already been adequately priced in, as well insulated by conservative pre-emptive provisioning,” it said.

The research house said both business and retail loans are maintaining their strong growth trajectory; CASA growth continues to moderate; asset quality shows a fourth consecutive month of improvement, and the interest spread of 1.88 per cent remains unchanged on a sequential month basis in December 2021.

Business loans grew by 4.3 per cent year-on-year (y-o-y) to RM831.2 million in December 2021, bolstered mostly by working capital loans; while retail loans grew by 4.9 per cent y-o-y to RM999.1 million.

Core contributors to retail loans growth were residential and vehicle loans, although credit card loans also showed a notable contribution.

December 2021’s CASA saw more moderate growth of 10.9 per cent y-o-y to RM701.8 million while contracting by 0.3 per cent month-on-month (m-o-m). CASA accounted for 32.4 per cent of total deposits in the month.

Gross impaired loans (GIL) ratio fell to 1.44 per cent, the fourth consecutive drop since its peak of 1.67 per cent in August 2021.

“We continue to expect rates to spike following the end of the moratorium, the brunt of which will likely be felt in the second quarter of the calendar year 2022 (2QCY22).

The research house is optimistic about a higher interest rate spread in 2022, premised on a potential overnight policy rate (OPR) hike in 2H22 and the return of deposit rivalry.

MIDF’s top picks are Maybank with a target price (TP) of RM8.90 per unit; and Public Bank (TP: RM5.10).

Meanwhile, CGS-CIMB Research said the industry’s loan growth of 4.5 per cent in 2021 was higher than its projected 2.5 to 3.5 per cent, due to stronger-than-expected business loan growth of five per cent.

“While banks’ GIL ratio of 1.44 per cent at the end 2021 was below our projected two per cent, there were no material write-backs of Covid-19 provisions in the fourth quarter of 2021,” it said. 

CGS-CIMB said better-than-expected loans growth and contained GIL ratio in 2021 have painted a positive picture for the banking sector.

“These support our expected continuous recovery in earnings growth, with our projected core net profit growth of 2.3 per cent in the calendar year of 2023 (CY22F), and 17.7 per cent in CY23F.

“This is the potential re-rating catalyst that underpins our overweight call for the sector,” the house said.

CGS-CIMB reiterated an “add” call on Hong Leong Bank (TP: RM20.56); Public Bank Bhd (TP: RM4.60); and RHB Bank Bhd (TP: RM6.40). 

Maybank Investment Bank (IB) said loans growth ended the year 2021 above expectations, expanding 4.5 per cent y-o-y against its forecast of 3.8 per cent with momentum in the last two months of 2021.

It is raising its 2022 loans growth forecast to 4.9 per cent from 4.0 per cent. 

It has a “buy” call on AmBank (TP: RM3.90); Alliance Bank (TP: RM3.25); Bank Islam (TP: RM3.20); Hong Leong Bank (TP: RM20.80) and RHB Bank (TP: RM6.00). 

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