Research houses have maintained their positive stance on the banking sector despite a notably slower pace of loan growth in November.
Banks recorded 5.5 per cent loan growth in November from 6.5 per cent year-on-year (y-o-y) in October 2022, against year-end estimates of 6 per cent.
Maybank Investment Bank Bhd said the primary reason for this has been the slowdown in business lending, while on the consumer front, auto and share margin financing has tapered off as well.
Loan applications contracted by 9.8 per cent in November y-o-y, it noted. Residential loan applications contracted 26.5 per cent y-o-y while passenger car and securities loan applications contracted 16.9 per cent y-o-y and 48.7 per cent y-o-y respectively.
“For a month-on-month (m-o-m) basis, loan applications contracted for the fourth consecutive month and by 5.3 per cent in November 2022. Hence into 2023, we are forecasting loan growth of 4.8 per cent.
“However, we maintained a ‘positive’ call on the sector, with ‘buys’ on CIMB Group, AmBank Group (AMMB), Alliance Bank Malaysia Bhd (ABMB), Hong Leong Bank Bhd (HLB) and RHB Bank Group,” it said in a research note.
RHB Research also reiterated its “overweight call” on the banking sector although it acknowledged the decline in system loan growth in November
“The system loans recorded a month-on-month (m-o-m) decline for the first time since August 2021 but remained largely on track against our forecast on a year-to-date (YTD) basis.
“Lending activities may have been subdued partly due to the fourth consecutive overnight policy rate (OPR) hike since May 2022.
“Elsewhere, current account savings account (CASA) deposits continued to trend downwards, while asset quality indicators remained encouraging,” it said.
RHB noted that the impact of rate hikes on banks’ net interest margins (NIMs) has been largely positive, although it expects to see some contraction moving forward due to the upward repricing of deposits.
Its preferred picks are CIMB, AMMB, and Alliance Bank Malaysia.
Kenanga Research also maintained its overweight call on the banking sector on the belief that the banking sector would be resilient with interest rate-backed support on earnings.
“We anticipate one 25 basis points hike to occur in January 2023 to an OPR of 3.00 per cent.
“Slower loan growth is widely anticipated with our in-house gross domestic product (GDP) target for 2023 coming in at 4.0 to 4.5 per cent.
“Still, factors such as possible writebacks of provisions and lapse of prosperity tax could place banking earnings ahead of most industries, making them a possible safe haven against recessionary concerns,” it said.
Meanwhile, Hong Leong Investment Bank Bhd has remained neutral on the sector.
“All considered, the banking sector has a balanced risk-reward profile. We expect financial sector stocks to trade largely sideways in the first half of this year since the appetite for the sector has diminished on a waning outlook.
“That said, consolation comes in the form of undemanding sector valuations and a decent dividend yield of 5 per cent, which would provide downside support to share prices,” it said.