RHB keeps 'overweight' call on banks as December data continued to indicate 'recovery trajectory'

RHB keeps 'overweight' call on banks as December data continued to indicate 'recovery trajectory'

KUALA LUMPUR (Feb 3): RHB Investment Bank Bhd (RHB Research) kept its “overweight” stance on the banking industry, noting that December banking system data continued to indicate a “recovery trajectory” with 2021's system loan growth at 4.5% ahead of its 3.8% forecast.

The local research house also sees better prospects for the sector on higher system loan growth this year, supported by continued broad-based recovery and a potential rate hike.

“We see upside risk to our projected 5.2% rise in 2022 system loans given the broad-based recovery in loan demand. The prospects of tightening of monetary policy should bring an upside to banks’ earnings,” RHB Research analysts Eddy Do Wey Qing and Fiona Leong said in a note on Thursday (Feb 3).

System loans grew by 4.5% year-on-year (y-o-y) and  0.5% month-on-month (m-o-m) in December 2021, indicating a recovery trajectory.

“The m-o-m loan growth anchored on a rise in auto loans (+1.1%) and mortgages (+0.8%), with both picking up in pace relative to November 2021, while offsetting weakness in loans used for the purchase of securities (-1.2%). Y-o-y, loan growth continued to be driven by mortgages (+6.8%) and loans for working capital purposes (+7.1%), contributing 4% of the 4.5% y-o-y growth,” they noted.

Meanwhile, system loan applications on a three-month moving average basis were up 6.9% m-o-m. Particularly, they were seeing stronger loan application momentum from the business segment (+7%), including sectors such as: i) transport, storage and communications; ii) finance, insurance and business activities; and iii) construction.

System deposits grew 1% m-o-m in December 2021, bringing 2021's system deposit growth to 8.6%.

However, with system deposits' m-o-m growth moderating from 3.6% in November, the system loan-to-deposit ratio was higher at 85.7% from 83.2% the previous month. Current account saving account (CASA) deposits shrank by 0.3% m-o-m (+10.9% y-o-y), bringing the system CASA ratio to decline to 41.8% from 42%.

In terms of banks’ assets quality, system gross impaired loans (GILs) declined 1.5% m-o-m, bringing 2021's GILs down 3.7% y-o-y.

“The m-o-m decline in GILs was broad-based (led by auto and personal loans). Despite that, we saw upticks in GIL ratios related to the purchase of securities at 0.5% (November: 0.39%), but the system GIL ratio was lower at 1.44% [in December 2021] (November: 1.47%). LLC (loan loss coverage) grew to 129% from 126.7% in November,” they added.

Small and medium enterprise (SME) financing charted a 1% m-o-m growth in November, lifting the cumulative 11-months-of-2021 annualised growth to 4.2%. The m-o-m improvements were led by loans related to purchase of securities, working capital loans and purchases of landed properties.

The RHB Research analysts think that SME financing growth is likely to have normalised in the month of December (a trend similar to December system data), while the broad-based recovery should continue to be robust.

For the sector, their top picks of Malaysian banks are CIMB Group Holdings Bhd (target price [TP]: RM6.30), Malayan Banking Bhd (Maybank) (TP: RM10.60) and AMMB Holdings Bhd (AmBank) (TP: RM3.90).

Notably, the Financial Services Index was up 0.68% or 106.26 points at 15,799.55 on Thursday morning.

Most banking stocks were in the green in morning trade.

At 11.30am, shares in CIMB had risen five sen or 0.96% to RM5.25, Maybank gained six sen or 0.73% to RM8.33 and AMMB was up six sen or 1.84% at RM3.32.

Public Bank Bhd was up one sen or 0.24% at RM4.22, while RHB Bank Bhd was three sen or 0.54% higher at RM5.59.

Hong Leong Financial Group Bhd (HLFG) advanced two sen or 1.1% to RM18.40, whereas Hong Leong Bank Bhd (HLB) added 12 sen or 0.62% to RM19.52. Both HLFG and HLB were among the top 20 gainers on the local bourse in the morning.

Bank Islam Malaysia Bhd (BIMB) was up one sen or 0.32% at RM3.16, while Malaysia Building Society Bhd (MBSB) gained one sen or 1.75% to 58 sen.

Meanwhile, Affin Bank Bhd was unchanged at RM1.78, whereas Alliance Bank Malaysia Bhd fell one sen or 0.3% to RM3.29.

http://www.theedgemarkets.com/article/rhb-keeps-overweight-call-banks-december-data-continued-indicate-recovery-trajectory