KUALA LUMPUR (May 2): Analysts are maintaining a positive outlook on the banking sector, as loan applications and uptake in fixed deposits (FDs) registered growth, coupled with an improvement in net credit cost and non-interest income during the first quarter of 2023.
This was despite a moderation in loan growth and current accounts and savings accounts (Casa).
Maybank Investment Bank (Maybank IB) said that loan applications increased month-on-month (m-o-m) by 29% in February and 23% in March after contracting from August 2022 to January 2023.
“The m-o-m increase was broad-based across practically every major segment,” said analyst Desmond Ch’ng.
MIDF Research added that the spike in FDs will push overall deposit growth, due to FD applications coming in after the Monetary Policy Committee’s decision to maintain the overnight interest rate (OPR) at 2.75% in March 2023.
“Regardless of the outcome, customers were eager to lock in deposits anyway,” said analyst Samuel Woo.
He added that the average lending rate continued to outpace FD rates, which bodes well for deposit competition as not all loan repricing is instantaneous in order to preserve more sensitive segments.
“Certain banks will be attempting to pass on higher deposit charges through elevated loan rates for more elastic segments in the coming months.”
“At this point, FD spreads should be close to peaking or have already peaked. A further decision to maintain the OPR could result in a decline in FD spreads.”
Nevertheless, both analysts noted that loan growth moderated to 5% year-on-year (y-o-y) in March 2023, versus 5.2% y-o-y in February 2023, with slower growth in household loans at 5.4% in March 2023 from 5.7% y-o-y in February 2023.
Non-household loan growth, meanwhile, was stable at 4.4% y-o-y, according to Ch’ng.
He added that consumer loan growth was also slower at 5.4% y-o-y in March 2023, from 5.7% y-o-y in February, primarily in mortgages, personal loans and credit cards, while share margin financing contracted in March.
“Auto financing and non-residential property lending nevertheless picked up pace m-o-m. Working capital loans expanded at a faster pace of 4.9% y-o-y in March 2023, as compared with 4.5% y-o-y in February 2023 and 3.8% y-o-y in January 2023,” said Ch’ng.
In terms of Casa, Ch’ng said it shrank for the third consecutive month by 1.8% y-o-y, compared with a contraction of 0.2% y-o-y in January and February 2023, while Woo said that the Casa ratio had fallen to 30.6%, the lowest since 2020.
“Despite erratic interbank spreads, banks maintained that there are no liquidity issues, with the LCR (liquidity coverage ratio) also remaining at a high level,” added Woo.
As for total industry credit growth, Ch’ng stated that bond issuances totalled RM10 billion in March 2023, lower than RM12.4 billion in March 2022, but exceeded the RM5.4 billion achieved in February 2023.
“Including bank loans, total industry credit growth was 4.9% y-o-y, versus 5.3% y-o-y in February 2023,” he said.
MIDF's top picks for the sector include Public Bank Bhd, with a "buy" call and a target price (TP) of RM5.08, and RHB Bank Bhd (buy; TP: RM6.74).
Meanwhile, Maybank IB has made several "buy" calls for the sector, including CIMB Group Holdings Bhd (TP: RM6.60), Hong Leong Bank Bhd (TP: RM24.10), RHB Bank (TP: RM7.10), Hong Leong Financial Group Bhd (TP: RM22.20), AMMB Holdings Bhd (TP: RM5.15), and Alliance Bank Malaysia Bhd (TP: RM4.00).
At the noon break, CIMB's share price had risen two sen or 0.4% to RM5.08, giving the group a market capitalisation of RM54.18 billion. Public Bank was up one sen or 0.26% at RM3.90, with a market cap of RM75.7 billion, while RHB Bank was up four sen or 0.73% at RM5.52, with a market value of RM23.45 billion.
AMMB rose three sen or 0.83% to RM3.64 (RM12.06 billion), while Alliance Bank was up four sen or 1.2% at RM3.37 (RM5.22 billion).
Hong Leong Bank was up 14 sen or 0.7% at RM20.28 (RM43.96 billion), while Hong Leong Financial Group was up two sen or 0.11% at RM18.14 (RM20.82 billion).