1HCY23 was a weak period for balance sheet growth – largely dragged by weak corporate drawdowns. Retail growth was constant (driven by delayed drawdowns of residential mortgages and hire purchases, as well as exceptional unsecured loan take-up). Bank loan growth targets have been disappointing in certain cases, but all banks seem highly confident in 2HCY23 corporate pipeline. It’s reflected in BNM’s monthly stats too – working loan applications posted staggering growth post-election.
Liquidity may have tightened but is still comfortable, deposit competition should remain rational. Weaker quarterly deposit growth and BNM’s major issuance of bills and bonds should mop up some market liquidity. Thankfully CASA balances have seen a more convincing rebound in the quarter (with even retail CASA tapering lessening), while FD uptake remains weak.
Regardless, repo growth is the strongest as it has ever been, with money markets currently a cheaper alternative to promo FDs.
Regardless of tighter liquidity, MIDF says banks have guided that deposit competition this time should remain rational (several one-offs contributed to last year’s atypical phenomenon).
After dramatic movements in 1HCY23, this quarter should see muted stable-to-slight decline movements, with depositor demand still decent despite FD rate cuts made in June/July. There is the possibility of seeing notable improvement in BIMB and Affin, but these are due to low base effects (their NIMs were in a lower standing than their peers). As deposit competition is slated to remain rational this time around, we think NIMs would warrant a closer look somewhere after the CNY festive season, when we believe banks will experiment with further rate cuts – possibly vying for FD rates even lower than that of 2023’s values.
NOII should see normalisation… Favourable interest rate movements (and in the case of CIMB, huge NPL sales) led to a bumper 2QCY23. While MYR movements should drive forex income, we think NOII contributions should be a lot more normalised this time around.
…and OPEX too. Banks are guiding for more “Normalised” figures, with most Collective Agreement adjustments having been finalised in 1HCY23. And as with most “Normalised” 2Hs, expect seasonal competition-related marketing costs and bonus allocations. Higher-than-expected tech spending may throw a wrench into an otherwise smooth quarter.
GILs were kept well under control, and overlay writebacks were delayed. While SME-related delinquencies from repayment assistance (RA) programmes are expected to see a marked increase (especially in an inflationary environment), BNM stats show that other GIL segments have been well accounted for, with numerous recoveries and writedowns keeping GIL levels well-contained. This is in line with most banks’ guidance of 2QCY23 GIL ratio being close to the peak. NCC allocations have been well guided – the house doubts there will be many surprises, except maybe in the case of Affin.
There is little excitement pertaining to writebacks in the short term – banks have either opted to retain overlays as
company-specific provisions, or delay writeback to CY24.
Core drivers, for now, are loan growth and improving dividend outlook (especially after several banks have increased payout and opted for full cash dividends upon completing respective capital build operations). From a capital gains perspective, we urge investors to be selective with their picks – the lack of foreign participation incentives could damper popular large/mid-sized banks rerating opportunities in the near term, despite solid fundamentals.
A soft victory is that major downside risks (asset quality, repeat of atypical deposit competition) seem unlikely in the short
term – apart from a few select names. HLBK has added pressure from poor China macro-outlook. Liquidity may be an issue
down the road but is buoyed by elevated interbank lending for now.
Top Picks: CIMB (BUY, TP: RM6.43) and AMMB (BUY, TP: RM3.98)
