Kenanga noted in its review of the banking sector in August, that system loans grew by 4.2% YoY, in line with CY23 expectation of 4.0%-4.5%. Household loans remain dominant as the demand for residential properties is thought to be skewed towards more affordable housing transactions amidst higher borrowing costs. On the other hand, business loans are holding up with support from service industries. On a MoM basis, both household and business loans grew by 0.7% as we reckon flattish OPR expectations have eased concerns on interest pressures and returned overall appetite to undertake loans
Applications flowing back in with new business loan applications outpacing housing loans, likely as the resumption of activities was supported by a more stable economic environment post-state elections, in August itself. Households also saw growth across the board but we noted a significant contributor came from the purchase of securities as trading participation could be stimulated by the above.
Aug 2023 GIL came in at 1.78% which we believe is still within a highly manageable range of industry players. GIL typically tapers between 1.60%-1.80% but may be recently more skewed to SMEs which may still see some challenges owing to higher input and forex costs. Meanwhile, industry loan loss coverage continued to taper down at 90.6% (Jul 2023: 91.5%, Aug 2022: 97.3%) as certain banks are progressively utilising past overlays.
System deposits came in at 4.6% YoY, which we deem to be within our CY23 deposits growth target of 5.0%-5.5% for now as we anticipate a pick-up towards the year-end. CASA was mostly stable at 28.3% (Jul 2023: 28.0%, Aug 2022: 30.3%) but we anticipate some slight expansion going forward as banks are likely to avoid further competition on the fixed deposits front. This may be potentially altered with another shift in OPR.
The house maintains OVERWEIGHT in the banking sector. While maintaining optimism on the sector on better overall forward macros, Kenanga believes investors may still be highly selective in their long-term picks. Plotting projections into a sector matrix, the house filtered its top picks to be banks that are underappreciated despite their respective growth prospects in both dividends and ROEs.
Top Picks, include CIMB as they remain to be one of the best-poised players to demonstrate above industry growth thanks to their enlarging regional footprint. On the other hand, CIMB’s sizeable overlay relative to earnings presents some handsome translation to earnings and special dividends. Kenanga also highlights AMBANK as it believes its current fundamentals are highly supportive of healthier discussions for M&As, which have in the past been frequently considered. The group is also one of the leaders in terms of SME profile, which is touted as a high-growth segment that could accelerate market share growth for the group should anticipate better economic prospects in the medium term.
For smaller cap banks, Kenanga sees potential in ABMB to be a favorite as it is fundamentally comparable to larger cap peers in both dividend and ROE. The group’s strength lie in its high proportion of quality SME accounts which also led the group to maintain one of the highest NIMs amongst its peers.
