Investment Highlights

• Industry loan growth was sustained at 5.0% YoY in May 2022. A higher household loan growth of 5.0% YoY was offset by a slightly slower non-household loans of 4.9% YoY. Lending for working capital loans slowed down in May 2022. YTD, the industry’s annualised loans have grown by 4.7%. This continues to be close to our expectation of 5–6% growth for 2022 supported by GDP growth of 5.6%.

• CASA growth slipped to 8% YoY in May 2022, lowering the sector’s CASA ratio to 32%. The sector’s LCR fell to 149% as of end-May 2022 contributed by lower LCRs of commercial and Islamic banks.

• Asset quality for the banking sector remains stable despite continued upticks in impaired loans as borrowers continue to exit loan repayment programmes leading to the tapering of the percentages of loans under repayment assistance. The sector GIL ratio was 1.6% while NIL ratio stood at 1.0%.

• Total provisions for the sector continued to rise marginally by 0.8% MoM or RM261mil in May 2022. With loans under financial assistance trending downwards, banks have yet to write back their management overlays significantly as they continue to be prudent on provisions in the near term. While there remains room for write-backs on overlays ahead, a portion of the prudential provision buffers set aside earlier could be utilised to cover specific loans that have impaired after the end of the broad repayment assistance programme (if necessary) without the need to further increase their provisions sharply.

• With the acceleration of Fed rate hikes towards 3.5% by end-2022, we have seen a more stable 10-year MGS at 4.2%. This has resulted in a mild uplift in banks’ capital ratios with a more favourable marked-to-market revaluation impact on FVOCI securities. Also, with a more stable bond yield, we are unlikely to see a similar negative impact on valuation of banks’ FVTPL securities as in 1Q22.

• Retain our OVERWEIGHT stance on the sector with our top BUYs of RHB Bank (fair value RM7.40/share), CIMB Group (FV RM6.60/share) and Maybank (FV RM10.30/share). Our earnings estimates for banks have taken into account another 100bps increase in OPR in 2H22 and 2023. This is in addition to the 25bps rate hike announced on 11 May 2022.

Source: AmInvest Research - 4 Jul 2022