AmInvest Research Reports

Author: AmInvest   |   Latest post: Tue, 24 Nov 2020, 5:57 PM


Banking - Faster Expansion Of Household Loans Offset By Slowdown In Non-Household Loans

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Investment Highlights

  • Industry loan growth moderated slightly to 4.4% YoY in Aug 2020 with household loans continuing to pick up pace but offset by slowdown in non-household loans. Growth in household loans gained further traction to 4.8% YoY with improvements in loans for purchase of residential property, passenger cars and personal financing. Meanwhile, non-household loan growth decreased further to 3.7% YoY. YTD loans growth improved marginally to 3.6% annualised. Aug 2020 saw a slowdown in disbursements for non-household loans. We continue to expect the industry loan growth to be 3.0–4.0% for 2020.
  • The level of loan applications declined MoM in Aug 2020 while loan approvals remained slow. Growth in industry loan applications slipped to -13.7% YoY vs. 5.9% YoY in July 2020. Both the levels of household and non-household applications declined in Aug 2020. Meanwhile, the contraction in industry loan approvals narrowed to -13.2% YoY vs. -14.3% YoY in July 2020. This has been contributed by the improved pace of approvals for household loans while approvals of non-household loans remained slow.
  • Weighted average lending rate slipped 3bps MoM while the base rate was unchanged. Aug 2020 saw the sector's weighted average lending rate decreasing 3bps to 4.04% but the base rate remained at 2.43%. Interest spread (the difference between weighted average lending rate and average FD rate) dropped to 2.38% attributed to the decline in lending rate. On 10 Sept 2020, BNM keep the OPR unchanged at 1.75%. Our economics team is now expecting no further cuts in the benchmark interest rate for the remainder of this year. This is expected to lead to a normalisation of banks’ interest margins from the earlier rate cuts. We expect to see the start of normalisation of NIMs (excluding the impact of modification loss) in the 4Q20. Arising from the expectation of no further OPR cut for the remainder of this year, we have reversed out the imputation of another 25bps rate cut from all of our projection of banks earnings for this year. This leaves only 125bps of rate cuts factored into our estimates for 2020.
  • Stable deposit growth while industry CASA continued to surge. Industry deposit growth was sustained at 4.5% YoY while CASA accelerated to a higher growth of 20.2% YoY, increasing the CASA ratio to 29.5%. The LD ratio for the sector was steady at 88.0%. Sector LCR fell to 149.0% in Aug 2020 due to the drop in LCRs of commercial, Islamic and investment banks.
  • Impaired loans continued to decline but provisions climbed MoM. The industry’s outstanding impaired loans in Aug 2020 declined by 1.2% MoM or RM315mil. The industry’s total GIL and NIL were stable at 1.4% and 0.9% respectively. The sector’s loan loss cover increased to 98.4%. We believe that this has been contributed by the lower impaired loans with the bulk of SME and consumer loans still under moratorium while banks continued to top up their provisions for the impact of Covid-19.
  • Retain our NEUTRAL stance on the sector on concerns of upticks in impairments of loans after the blanket automatic moratorium ends. Our top picks are Hong Leong Bank (FV: RM16.80/share), RHB Bank (FV: RM5.70/share) and Maybank (FV: RM8.40/share).

Source: AmInvest Research - 1 Oct 2020

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