RHB Bank is CIMB Research's top pick for the sector.
KUALA LUMPUR: CIMB Equities Research retains its Neutral call on Malaysia banks, premised on the lethargic loan growth and potential rise in credit cost upon adoption of the new accounting standard MFRS 9 in 2018.
It said on Tuesday the potential upside risks to its call are a pick-up in loan growth and expansion in margins.
“On the other hand, the potential downside risks include a rise in banks’ loan loss provisioning upon the adoption of MFRS 9 in 2018. RHB Bank is our top pick for the sector,” it said.
CIMB Research said the industry’s loan growth continued to moderate from 4.6% on-year at end-October 2017 to 3.9% on-year at end-November 2017.
This was mainly caused by the slowdown in business loans with broad-based moderation across the sectors, notably in manufacturing loan as well as transport, storage and communication loan sectors.
“Nevertheless, the trends in November 2017’s leading loan indicators were the strongest so far this year. The industry’s loan applications and approvals grew by 15.8% on-year and 22.3% on-year, respectively, in November 2017.
Both loan indicators were driven by the strong growth of c.18% on-year in residential-mortgage segment.
“For loan approvals, we have also seen a reversal from 6.3% on-year decline in October 2017 to a growth of 7.8% on-year for the approvals of working capital loans, while expansion of approvals of auto loans widened to 11% on-year in November 2017,” it said.
CIMB Research said in view of the robust Nov 17 leading loan indicators, it expects the industry’s on-year loan growth to stabilise or even improve slightly in December 2017 (vs. Nov 17).
“As such, the 2017 loan growth would come close to the lower-end of our projected 45-5%, in our view. We are forecasting a similar loan growth of 4-5% for 2018F, given the lack of catalysts for a strong recovery in loan growth.
“Banks’ gross impaired loan (GIL) ratio improved for the second consecutive month, down from 1.65% at end-Oct 17 to 1.61% at end-Nov 17.
“Meanwhile, the loan loss coverage rose from 82.1% at end-Oct 17 to 84% at end-Nov 17. As the GIL ratio has been unchanged YTD Nov 17, which was better than our expectation, we cut our projected GIL ratio for end-2017 from 2% to 1.8%. We expect the industry’s GIL ratio to be largely stable at around 1.8% at end-2018,” it said.
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