Analysts from several research houses are positive about the outlook for the banking sector on the expectation that the ongoing economic recovery will sustain demand for loans despite rising interest rates.
RHB Investment Bank Bhd has maintained its overweight stance on Malaysia’s banking sector on the back of resilient demand for financing despite interest rate hikes.
The bank said in a note today that despite the 25 basis points (bps) hike in the overnight policy rate (OPR) in early July, demand for financing has continued to trend upwards, with system loan applications growing 4.5 per cent month-on-month (m-o-m) in July.
It noted that system loans grew 5.9 per cent year-on-year (y-o-y), bringing the first seven months of 2022s annualised growth to 5.2 per cent y-o-y.
In particular, it said momentum was seen in loans to households (6.1 per cent y-o-y,) and the wholesale and retail trade (13.6 per cent y-o-y) segments, offset slightly by a decline in construction loans (minus 2.9 per cent y-o-y).
Elsewhere, the outstanding debts of credit cards surged 16.1 per cent on year on the back of sustained economic activity.
We raise our system loan growth forecast to 5.5 per cent from 5.1 per cent, in tandem with the upward revision in RHB economists 2022 real gross domestic product (GDP) growth to 6 per cent from 5.3 per cent.
We maintained our upbeat stance on banks, as healthy loan growth, coupled with net interest margin (NIM) expansion fuelled by the OPR hikes, should bode well for the sector, the bank said.
Kenanga Research also kept its overweight rating on the banking sector following second quarter results as the banks performance generally met its expectation.
Broadly, the banks mostly saw improvements in loan books as demand for financing was spurred by the economic recovery.
For now, we keep our top picks on dividend-focused counters as while fundamentals remain sound, inflation-led pressures may hamper sentiment, it said.
The research house said the ability for customers to finance their loans would not be a major overall concern as economic recovery should uplift income levels while current rates are still lower than pre-COVID-19.
With the lapse of prosperity tax and much stable asset quality expectations in 2023, the banks should demonstrate more vibrant profits which would further fortify dividend returns, it added.
In line with other research houses, Maybank Investment Bank Bhd maintained its positive call on the sector as the loan growth momentum continues to be fairly robust and banks have generally been more upbeat about their loan growth targets during the second quarter results season.
Correspondingly, our industry loan growth estimate for 2022 is raised to 5.2 per cent from 4.9 per cent, it said.
However, it highlighted that impaired loans have continued to tick up with the expiry of the National People’s Well-Being and Economic Recovery Package (PEMULIH) loan scheme in December 2021.
Gross impaired loans (GIL) rose 14 per cent year-to-date in absolute terms and the GIL ratio was higher, but still relatively benign, at 1.85 per cent at end-July 2022 versus 1.68 per cent at end-December 2022.
The largest increase since December 2021 has been from the construction sector, which saw its GIL ratio increase 158 bps from December 2021 to July 2022, it noted.
