PETALING JAYA: Analysts are projecting banking industry loans to grow between 4%
and 5% this year from 5.7% last year amid slower economic growth and margin compression.
Industry loan growth picked up pace marginally to 5.2% year-on-year (y-o-y) in February this year from 5% y-o-y in January. However, loan applications jumped 29% month-on- month (m-o-m) in February 2023, having contracted m-o-m over the past six months.
CGS-CIMB Research analyst Winson Ng said he projects weaker loan growth of 4% to 5% for this year.
Furthermore, he does not expect any quarter-on-quarter (q-o-q) spike in banks’ first- quarter 2023 (1Q23) forecast loan loss provisioning (LLP), given the small increase of only RM157mil in total provision in the two months of 2023.
He added that the uptick in the gross impaired loan (GIL) ratio for February was within the research house’s expectations, as he is projecting a higher GIL ratio of 2% at end- 2023.
The industry’s GIL ratio inched up from 1.73% at end-January to 1.76% at end-February 2023. This was due to the wider increase of 2.1% m-o-m in GIL in February versus a rise of 0.4% m-o-m in total loans.
“We reaffirm our ‘overweight’ call on banks, predicated on the potential re-rating catalysts of our expected recovery in non-interest income growth in 2023 and potential write-back of management overlay (which will reduce banks’ LLP).
“Dividend yield is attractive at 5.2% for the sector in calendar year 2023. Our picks for the sector are RHB Bank Bhd, Hong Leong Bank Bhd and Public Bank Bhd ,” Ng noted.
Maybank Investment Bank Research analyst Desmond Ch’ng said he is maintaining his industry loan growth forecast of 4.8%. Meanwhile, he noted that current account savings account (CASA) contracted y-o-y again for the second consecutive month, denoting the net interest margin (NIM) compression that the industry is expected to face this year.
“This has, nevertheless, been imputed into our forecasts. We maintain ‘buy’ calls on CIMB Group , RHB Bank, Hong Leong Financial Group, Hong Leong Bank, AMMB Holdings Bhd and Alliance Bank Malaysia Bhd,” he said.
Meanwhile, household (HH) loans grew 5.7% y-o-y in February versus 5.6% y-o-y in January, but non-HH loan growth picked up pace to 4.4% y-o-y from 4% y-o-y in January.
Downside risks for the industry, Ch’ng said, include weaker-than-expected gross domestic product (GDP) growth, which could lead to slower loan growth and asset quality issues, potential interest rate cuts that could negatively impact interest margins in the short term, and a slowdown in CASA growth, which could exacerbate deposit competition.
Kenanga Research analyst Clement Chua, who maintained his “overweight” call on the banking sector, said the recent readings painted a more upbeat outlook, with loans and deposits picking up steadily while supported by manageable risk levels.
However, he believes subsequent periods may not offer similar strengths with the expectations that higher inflation and uncertain macro factors may suppress overall activities.
“In spite of this, we continue to believe the banks will stay resilient as any shocks would be sufficiently buffered by their respectively high capital reserves as well as excess overlays and Covid-19 provisions, which could either be consumed or written back if conditions are more favourable.
“That said, we are cognisant of the depressed state of banking stocks amidst recent fall- outs of several high-profile foreign financial institutions.
“Hence, we recommend selective names that offer a greater safety net amongst peers while avoiding banks with higher non-interest income exposure, as investors may also view this space with greater caution,” he said.
For 2Q23, Kenanga is promoting Public Bank as it is the leading bank in terms of GIL reading at 0.4% (vs peer average: 1.5%), backed by a highly collateralised loan book thanks to a substantial mortgage portion (41% of total books).
Meanwhile, its recent share sell-down owing to uncertainties of its shareholder and ownership structure may see an inversion when clarity on the matter unfolds, it said.
The research house also likes RHB Bank as it believes the relevancy of strong capital safety would be in the limelight once more. RHB Bank continues to lead with its common equity tier-1 buffers (17% vs the peer average of 14%).
On the other hand, the bank’s dividend prospect is becoming more promising with targeted payouts of about 55% looking to generate yields of 7% to 8%. Developments on its upcoming digital bank with Boost could support interest in the stock.
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