Analysts remain overweight banking sector due to strong lending growth in November

KUALA LUMPUR (Jan 3): Analysts maintained their outlook for “overweighting” in the banking sector after loan growth in November accelerated to a solid 4.3% year-on-year.

Hong Leong Investment Bank Research analyst Chan Jit Hoong in a note on Monday Jan. 3 said the system’s loan growth exceeded its estimate of 3% to 3.5% for fiscal 2021 (FY21) . As such, he revised it from 4% to 4.5% given the reduction in headwinds from Covid-19.

“We are seeing FY22 loans growing at a similar rate, aided by the economic recovery,” he added.

For the net interest margin, he expects it to widen over FY22 due to more benign rivalry on deposits and better returns on reinvestment in asset safety, coupled with to potential overnight rate hikes.

He also believes that the risk-return profile of the sector is skewed upwards, as most of the negative aspects would have been taken into account by the market.

“In our opinion, the woes of Covid-19 will likely end in 2022, while the state of the economy and the banking sector will only improve over time. As such, we are optimistic and use a fairly broad stock buying strategy in the first half of 2022, ”he said while maintaining an“ overweight ”to the sector.

For big banks, he likes Malayan Banking Bhd (Maybank) (target price [TP]: RM9.40) for its high yield and Public Bank Bhd (TP: RM4.50) for the quality of its resilient assets.

For mid-sized banks, he said that RHB Bank Bhd (TP: RM7) is preferred for its high Tier 1 (CET1) capital ratio and attractive price.

For smaller banks, the three under its cover have received “buy” calls for different reasons: i) Bank Islam Malaysia Bhd (TP: RM 3.45) for its positive structural growth drivers; ii) Alliance Bank Malaysia Bhd (TP: RM 3.30) for its faster than expected upward normalization dividend payout; and iii) Affin Bank Bhd (TP: 2.25 RM) for its potential exercise of unlocking the value of its asset management arm.

Meanwhile, TA Securities analyst Wong Li Hsia said that since the year-to-date loan growth (YTD) was already 4%, the overall system loan growth in 2021 would probably exceed his forecasts.

According to her, the gap is due to a strong recovery in business loans since the resumption of economic activities as well as a recovery in certain key segments of consumer credit, such as personal loans, securities purchases and leasing. -sale.

“In 2022, we forecast a 5.2% increase in loan growth for the system. We believe the expansion will be fueled by 4.6% and 5.6% year-over-year growth in business and consumer loans respectively, ”she said.

With that, it retained its “overweight” rating in the banking sector.

However, given the recent rise in bank stock prices, it downgraded Public Bank’s rating from “hold” to “sell” as the total rise had fallen to less than 7%.

It also downgraded CIMB Group Holdings Bhd’s rating from “buy” to “keep”, as the total increase had declined to between 7% and 12%.

RHB Investment Bank analysts Eddy Do and Fiona Leong also said banking system data from November 2021 pointed to a continuing recovery, with business segment loan demand rebounding from declining the previous month.

“The growth of the current account / savings account (CASA) accelerated, while the growth of the gross impaired loan ratio (GIL) moderated to 0.6% year on year. Banks remain the best indicator of an economic recovery and a key beneficiary of rising interest rates, ”they said.

They maintained an “overweighting” on the sector, their first choices remaining CIMB (good progress of the return on equity strategies), Maybank (environment, social and governance [ESG] leadership and attractive dividends) and AMMB Holdings Bhd (recovery of profits and undemanding valuation).

Meanwhile, AmInvestment Bank analyst Kelvin Ong said the sector’s lending had increased 4.3% year-to-date, in line with his projection of 3% to 4% for 2021.

“We forecast higher growth in lending to industry of 5% to 6% for 2022, supported by stronger economic growth with improved private sector spending and exports,” he said.

It maintained its “overweight” position in the sector, its main buys being RHB (TP: RM 6.90), Maybank (TP: RM 9.90) and CIMB (TP: RM 6.20).

Regarding small cap banks, he likes Alliance Bank (TP: 3.80 RM) due to its undemanding valuation, improved outlook for asset quality and normalization of dividend payouts.

Dorothy H. Lewis