In Nov 2022, the local banking sector’s system loans recorded a month-on-month (MoM) decline for the first time since Aug 2021, but remained largely on track against RHB Research’s forecast on a YTD basis. Lending activities may have been subdued, partly due to the fourth consecutive Overnight Policy Rate (OPR) hike since May 2022. Elsewhere, CASA deposits continued to trend downwards, while asset quality indicators remained encouraging.
Hence, RHB REsearch has maintained OVERWEIGHT with CIMB, AMMB and Alliance Bank Malaysia as preferred picks of the banking sectors.
System loans grew 5.5% year-on-year (YoY) (MoM: -0.1%), driven by the household (+6% YoY, +0.5% MoM) and wholesale & retail trade (+10% YoY, -1% MoM) segments. On the other hand, MoM weakness was seen in the manufacturing (-2% MoM, +1% YoY) and real estate (-2% MoM, -1% YoY) sectors, leading to an overall MoM decline in system loans.
The negative MoM growth in November led to a smaller 11M22 (annualised) growth rate of 5.4% (10M22: +6.0%), which lags behind RHB Research’s forecasted 5.8% increase for the full year. However, the research house still deems this to be on track, as it did expect loan growth to be strong during the December festive period. It does make that 2023 system loans growth forecast of 5.4% YoY in its research report.
A fourth consecutive OPR hike. Bank Negara Malaysia (BNM) raised the OPR by 25bps to 2.75% in early November, bringing the full-year increase to +100bps. The average lending rate (ALR) was subsequently raised to 4.80% (from 4.68% in October), while the 12-month fixed deposit (FD) rate added 24bps MoM to land at 2.68%. The impact of rate hikes on banks’ NIMs has been largely positive, though the research house might expect to see some contraction moving forward due to the upward repricing of deposits.
Lending activities softened MoM. In tandem with the rate hikes, appetite for financing continued to dampen, with system loan applications declining 5% MoM in November. Approvals were also down 7% MoM, while disbursements stayed flat.
Moving forward, it is expected lending activities to normalise downwards as the economic reopening effect wears off, along with the continued rise in interest rates. Regardless, RHB Research is still maintaining its view that a mid-single digit loan growth rate can be sustained in 2023.
A shrinkage in deposits. System deposits decreased 1% MoM (YoY: +6%) with businesses, financial institutions and government agencies withdrawing their holdings. As guided by the banks, the CASA ratio fell to 41.1% (Oct 22: 41.3%) after CASA deposits shrank by 0.3% MoM (YoY: +1%). For 11M22, deposit growth has been sluggish at 1.8%, but a LDR of 85.9% (Dec 2021: 86.6%) implies the banks still possess ample liquidity.
Top Picks Target Price
CIMB (CIMB MK) – BUY MYR7.00
AMMB (AMM MK) – BUY MYR4.80
Alliance Bank M’sia (ABMB MK) – BUY MYR4.40