KUALA LUMPUR (Jan 3): Analysts maintained their "overweight" outlook on the banking sector after loan growth in November expanded at a solid pace of 4.3% year-on-year.

Hong Leong Investment Bank Research analyst Chan Jit Hoong in a note on Monday (Jan 3) said that system loan growth beat his 3% to 3.5% full financial year 2021 (FY21) estimate. As such, he revised it up to 4% to 4.5% given abating Covid-19 headwinds.

“We see FY22 loans rising at a similar pace, aided by the economic recovery,” he added.

For the net interest margin, he expects it to widen in FY22 on the back of more benign deposit rivalry and better asset security reinvestment yields, coupled with potential overnight policy rate hikes.

He also believes the sector’s risk-reward profile is skewed to the upside as most negatives would have been considered by the market.

“In our opinion, Covid-19 woes will likely fizzle out in 2022, while the state of the economy and banking sector will only get better in time. As such, we are bullish and employ a rather broad stock-buying strategy in the first half of 2022,“ he said while maintaining "overweight" on the sector.

For large-sized banks, he likes Malayan Banking Bhd (Maybank) (target price [TP]: RM9.40) for its strong yield and Public Bank Bhd (TP: RM4.50) for its resilient asset quality.

For midsize banks, he said RHB Bank Bhd (TP: RM7) is favoured for its high common equity tier 1 (CET1) ratio and attractive price tag.

For small-sized banks, all three under his coverage were given "buy" calls for different reasons: i) Bank Islam Malaysia Bhd (TP: RM3.45) for its positive structural growth drivers; ii) Alliance Bank Malaysia Bhd (TP: RM3.30) for its quicker-than-expected upward normalising dividend payout; and iii) Affin Bank Bhd (TP: RM2.25) for its potential asset management arm value-unlocking exercise.

Meanwhile, TA Securities analyst Wong Li Hsia said given that year-to-date (YTD) loan growth was already at 4%, the overall system loan growth in 2021 would likely exceed her forecast.

According to her, the variance is due to a strong pickup in business loans since economic activities resumed as well as a turnaround in some key consumer loan segments, such as personal loans, purchases of securities and hire purchase.

“Moving into 2022, we anticipate a 5.2% increase in loan growth for the system. We believe the expansion will be fuelled by a 4.6% and 5.6% year-on-year growth in corporate and consumer loans respectively,” she said.

With this, she retained her "overweight" rating of the banking sector.

However, given the recent increase in banking stock’s share prices, she downgraded Public Bank from "hold" to "sell" as the total upside had fallen to less than 7%.

She also downgraded CIMB Group Holdings Bhd from "buy" to "hold" as the total upside had narrowed to between 7% and 12%.

RHB Investment Bank analysts Eddy Do and Fiona Leong also said that November 2021 banking system data pointed to a continued recovery, with loan demand from business segments rebounding from a decline the month before.

“Current account/saving account (CASA) growth picked up, while the gross impaired loan (GIL) ratio growth moderated to 0.6% year-on-year. Banks remain the best proxy for an economic recovery and a key beneficiary of higher interest rates,” they said.

They maintained "overweight" on the sector, with their top picks remaining as CIMB (good progress in return on equity-lifting strategies), Maybank (environmental, social and governance [ESG] leadership and attractive dividends) and AMMB Holdings Bhd (earnings recovery and undemanding valuation).

Meanwhile, AmInvestment Bank analyst Kelvin Ong said the industry’s loans YTD had grown by 4.3%, in line with his projection of 3% to 4% for 2021.

“We expect a higher industry loan growth of 5% to 6% for 2022, underpinned by stronger economic growth with an improvement in private-sector expenditure and exports,” he said.

He retained his "overweight" stance on the sector with his top buys being RHB (TP: RM6.90), Maybank (TP: RM9.90) and CIMB (TP: RM6.20).

On smaller-cap banks, he likes Alliance Bank (TP: RM3.80) due to its undemanding valuation, improving outlook for asset quality and normalising dividend payouts.