KUALA LUMPUR, Sept 2 ― AmBank Research is maintaining its “overweight” stance on the banking sector despite the slower household loan growth and rising gross impaired loan (GIL) ratio.
It said the industry’s total loan growth tapered to 3.1 per cent year-on-year (y-o-y) in July 2021 due to sluggish household loans performance amid stricter movement restrictions following the lockdown in Selangor and Kuala Lumpur.
In a research note today, it said household loan growth slipped to 4.2 per cent y-o-y in July 2021 (June 2021: 5.2 per cent ) with most segments recording slower growth rates, while non-household loans rose 1.7 per cent y-o-y following the stronger growth in working capital loans.
The banking industry also saw slower loan applications and approvals in July 2021, it noted.
“Nevertheless, we expect loan applications and approvals to gain momentum from September 2021 onwards with the announced easing of mobility restrictions for fully vaccinated individuals and the opening up of more economic sectors on August 16.
“The government has allowed activities to resume in the manufacturing, construction, mining and quarrying sectors with the capacity of operations based on the percentage of vaccinated employees,” it said.
AmBank Research also noted the uptick in impaired loans in July, mainly in household loans, leading to a slightly higher GIL ratio of 1.7 per cent.
Nevertheless, the research firm said the continued availability of repayment assistance ― such as the six-month moratorium for individual and small and medium enterprises (SME) borrowers ― is expected to keep banks’ asset quality stable until end-2021.
The National People’s Well-Being and Economic Recovery Package (Pemulih) moratorium commenced on July 7.
Ambank Research noted total provisions for the banking sector rose by 2.5 per cent month-on-month or RM859 million, as banks continued to conservatively top up their provisions (additional overlays) in the second quarter of 2021.
It said this was due to the economic impact of stricter lockdown measures which started in June 2021 following the surge in Covid-19 cases.
“In July and early August 2021, the percentages of most bank loans that were under payment relief assistance had increased with the take-up of Pemulih moratorium, however, applications for payment relief programmes had started to taper in the later part of August.
“With the reopening of more economic sectors, it is likely that there will not be a need for substantial increase in overlays in the second half of 2021,” it said.
On another note, it said the banking sector’s current account-savings account (CASA) ratio remained stable at 31.7 per cent despite the industry’s CASA growth tapering to 12.9 per cent y-o-y.
The loan-to-deposit ratio for the sector fell to 87.2 per cent while the liquidity coverage ratio continued to climb to 152.0 per cent in July 2021, said Ambank Research.
“We retain our overweight stance on the sector with top buys being RHB Bank with a fair value (FV) of RM6.80 a share, Maybank (FV RM9.90 a share) and CIMB Group (FV RM5.80 a share).
“We favour banks with expected improvement in regional performance from the gradual economic recovery and banks with undemanding valuations,” it added. ― Bernama
