AmInvestment Research Neutral on banking, prefers CIMB, RHB Bank

CIMB Research's top pick is RHB Bank

KUALA LUMPUR: AmInvestment Bank Research is retaining its Neutral outlook on the banking sector and remains selective on banking stocks with Buy recommendations on CIMB Group and RHB Bank. 

“CIMB (fair value: RM5.70 a share) and RHB Bank (fair value: RM6 a share) remained as our Buy calls,” it said on Thursday. 

The research house continues to like these two stocks due to compelling valuations, trading below one time price-to-book value (P/BV), decent returns on equity (ROEs) and potentially further improvements to cost-to-income ratios from cost initiatives.

AmInvestment Research said industry loans registered a higher growth of 5.6% on-year with business loans continuing to gain traction. 

Industry loan growth continued to rise to 5.6% on-year in January 2017 from 5.3% on-year in the previous month. The expansion was driven by stronger momentum for business loans. 

Working capital loans continued its rising trend while growth in household loans moderated slightly in January 2017. 

For household loans, growth in mortgage loans remained stable compared to the previous month while loans for purchase of vehicles remained slow, in line with the drop in new car sales. 

“January 2017 saw higher loan disbursements while loan repayments contracted by a marginal 0.7% on-year,” it pointed out.

As for loan applications, they continued to contract by 8.4% on-year while loan approvals declined by 5.1% on-year in January 2017. The levels of loan approvals dropped in January 2017.

However, deposit growth improved in January 2017 with a stronger current account/savings account (CASA) growth. Industry deposit growth improved to 2.6% on-year in January 2017, higher than the 1.5% on-year recorded in December 2016. 

Business enterprises’ deposits continue to contract but at a lower rate of decline at -0.3% on-year, while individual deposits expanded with a higher growth rate of 6.0% on-year. 

Industry CASA growth rose to 5.8% on-year. This led to a higher CASA ratio of 26.7%. 

Liquidity eased slightly for the sector with a lower LD ratio of 89.4%.

Base rate was stable at 3.62% in January 2017. Interest spread – which is between the average lending rate (ALR) and three-month fixed-deposit rate -- rose by 5bps on-month to 1.62%, due to higher ALR.

Marginal increase in impaired loans by 0.2% on-month or RM55mil in January 2017. Total GIL and NIL ratios for the industry remained stable at 1.6% and 1.2% respectively. 

“Sector loan loss cover improved to 91.5% in January 2017 from 90.2% in December 2016 due to higher collective and individual impairment allowances,” it said.