RHB maintains OVERWEIGHT on the banking sector with Top Picks: CIMB, Malayan Banking, and AMMB. The December banking system data continued to indicate a recovery trajectory, with 2021 system loan growth of 4.5% ahead of our 3.8% forecast.
Loan demand from both household and non-household segments continues to be robust at elevated levels, while asset quality remains resilient (system GILs at 1.44%, LLC at 127%). The investment house sees upside risk to its projected 5.2% rise in 2022 system loans, given the broad base recovery in loan demand. The prospects of tightening in monetary policy should bring upside to banks’ earnings.
Dec 2021 system loans grew 0.5% month on month, bringing 2021 loan growth to 4.5% YoY. The month-on-month loan growth anchors on the rise in auto loans (+1.1%) and mortgages (+0.8%), with both picking up in pace relative to Nov 2021, while offsetting the weakness in loans used for the purchase of securities (-1.2%). YoY, loan growth continues to be driven by mortgages (+6.8%) and loans for working capital purposes (+7.1%), contributing 4% to the 4.5% YoY growth.
System loan applications, on a 3-month moving average (3MMA) basis, were up 6.9% MoM. Particularly, RHB is seeing stronger loan application momentum from the business segment (+7%), from sectors such as i. Transport, storage, and communication, ii. Finance, insurance, and business activities, and iii. Construction. On the other hand, the household segment grew by a slower 7% relative to the past two months. On a monthly basis, the growth in loan applications declined 0.6% MoM, dragged by weakness in loans related to securities and other purposes.
System deposits grew 1.0% MoM with 2021 growth at 8.6%. With MoM growth moderating from 3.6% in November, system LDR was higher at 85.7% from 83.2% the previous month. CASA deposits shrank 0.3% MoM (+10.9% YoY). System CASA ratio declined MoM to 41.8% from 42.0%.
System GILs declined 1.5% MoM, bringing 2021 GILs down 3.7% YoY. The MoM declined 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 is lower at 1.44% (November: 1.47%). LLC grew to 129% from 126.7% in November.
SME financing was up 1% MoM in November, lifting 11M21 annualised growth to 4.2%. MoM improvements were led by loans related to purchasing of securities, working capital loans, and purchase of landed properties. We think that the former is likely to normalize in the month of December (similar trend to Dec system data), while the broad base recovery should continue to be robust. GILs declined 0.2% MoM, with a stable GIL ratio of 2.42% (Oct: 2.45%)