KUALA LUMPUR, Sept 3 — CGS-CIMB Research has reiterated its 'overweight' call on Malaysia’s banking sector, premised on the expected recovery in the sector’s core net profit growth which it projected to be at 9.4 per cent in 2021.
The research house said it expected banks’ 2021 earnings to be catalysed by lower loan loss provisioning and expansion in net interest margin.
It noted that the slower year-on-year (y-o-y) loan growth in July 2021 was due to weaker household loans growth, with industry loan growth moderating for the second consecutive month, from 3.9 per cent y-o-y at end-May 2021 to 3.4 per cent y-o-y at end-June 2021 and 3.1 per cent y-o-y at end-July 2021.
However, it said loan growth for the first seven months of 2021 was within expectations as it had expanded by 1.7 per cent — translating into an annualised forecast growth of 3 per cent y-o-y for 2021.
CGS-CIMB said the industry’s gross impaired loan (GIL) ratio continued to increase from 1.62 per cent at end-June 2021 to 1.67 per cent at end-July 2021, as the prolonged lockdown amid the Covid-19 outbreaks had negatively impacted the income levels of certain individual and small and medium enterprise borrowers.
“We expect the GIL ratio to continue to rise to two per cent by end-December 2021.
“However, the comfort is that banks have been building up their provision buffers against the COVID-19 credit risks since last year, reflected by the rise in the industry’s loan loss coverage from 82 per cent at end-December 2019 to 111.5 per cent at end-July 2021,” it said.
Meanwhile, Maybank Investment Bank Research (Maybank IB) maintained its “neutral” stance on the banking sector.
The investment bank said the loan growth of 3.1 per cent y-o-y in July trailed its full-year forecast of 3.8 per cent, but expected the momentum to pick up particularly in the fourth quarter of 2021 as the economy gradually reopens.
It noted that loan applications — which jumped between 44 per cent and 92 per cent y-o-y in March to May 2021 (due to the low base effect in 2020) — had turned south once again, contracting by one per cent y-o-y in June and 28 per cent y-o-y in July 2021.
Maybank IB added that the moderation in current account-saving account growth alongside the pick-up in fixed deposit competition among banks are some of the factors that are expected to contribute to a compression in interest margins in the second half of 2021. — Bernama
