KUALA LUMPUR (May 2): CGS-CIMB Securities Research has reaffirmed its “overweight” rating on Malaysian banks, and said it expects stronger non-interest income growth in 2023 and potential write-back of management overlay.
In a note on Monday (May 1), analyst Winson Ng said the banking industry’s loan growth eased from 5.2% year-on-year (y-o-y) at end-February 2023 to 5% y-o-y at end-March 2023, in line with his expected growth of 4%-5% for 2023.
“Given the q-o-q (quarter-on-quarter) decline in total provision in 1Q2023F (first quarter of 2023 forecast), we see minimal risk of a q-o-q spike in banks’ loan loss provision (LLP) in 1Q2023F.
Ng said despite market concerns over a potential deterioration in asset quality given the additional credit risks from an economic slowdown, banks’ gross impaired loan (GIL) contracted by RM162.5 million or 0.5% month-on-month in March, better than house expectation for a continuous uptrend in GIL.
“Although this could be partly due to the possible write-off of GIL by certain banks, the decline in banks’ total GIL suggests there was no material increase in banks’ new GIL, in our view.
“The GIL ratio inched down from 1.76% at end-Feb 23 to 1.75% at end-Mar 23, but rose by 3bp q-o-q in 1Q2023F. We expect banks’ GIL ratio to rise to 2% by end-Dec 23,” he said.
Ng said given the robust loan applications in March 2023, he expects a slight recovery in banks’ loan growth to exceed 5% y-o-y in 2Q2023 (from circa 5% y-o-y at end-March 2023).
“In the longer term, we think that the downside risk for loan growth still persists (to below 5% y-o-y), given our projected weaker GDP (gross domestic product) growth of 4.4% in 2023F, vis-à-vis 8.7% in 2022. We are forecasting a loan growth of 4%-5% for 2023F, lower than the 5.7% recorded in 2022,” he said.