KUALA LUMPUR: CIMB Equities Research continues to rate Malaysian banks as a Neutral given the concerns over margin erosion and an expected uptick in credit costs.
“On a positive note, the sector’s dividend yield is attractive at a projected 4.1% for CY19F. RHB Bank remains our top pick in the sector,” it said on Thursday.
CIMB Research said the industry’s loan growth continued to ease albeit marginally, from 5% year-on-year (yoy) at end-February 2019 to 4.9% yoy at end-March 2019.
The slowdown was observed in business loan growth (from 4.3% yoy at end-February 2019 to 4.1% yoy at end-March 2019).
Meanwhile, household loan growth improved slightly from 5.2% yoy at end-February 2019 to 5.3% yoy at end-March 2019.
The industry’s loan applications continued to decline, by 6% yoy in March 2019, with contractions in three major loan segments, i.e. working capital loans, auto loans and nonresidential mortgages.
On the flip side, loan approvals reversed the drop of 6.7% yoy in February 2019 to expand by 6.3% yoy in March 2019 with a turnaround in the growth of the approvals of residential mortgages and the auto loan.
“Given the rebound in growth of the industry’s loan approvals in March 2019, we expect loan growth to recover in 2Q19 following the downtrend over the past four months.
“However, we think that this may not be sustainable as loan applications in March 2019 remained weak. We stick to our projected loan growth of circa 5% for 2019F.
“Following a small increase in Feb 19, banks’ gross impaired loan (GIL) ratio improved from 1.48% at end-February 2019 to an all-time low of 1.46% at end-March 2019. Meanwhile, the loan loss coverage was stable at circa 96.1% at end-February 2019 and end-March 2019,” CIMB Research said.