KUALA LUMPUR: Kenanga Investment Bank Research expects accommodative interest rates will continue to support a resilient household segment, mitigating the moderation in business spending.
It said on Thursday due to the banks’ modest target for 2020 (after the recent results season), it expects system loans to end at 4-4.5% YoY (more on downside bias) driven by resilient household (5% to 5.4%) and business (2% to 2.5%) coming from a fiscal push expected in 2H 2020.
“The soft interest rate regime is expected to support loans growth coupled with ease of applications. While the uptick in impaired loans is a concern, it is still below its five-year peak of 1.67% in February 2015, ” it said.
To recap, Kenanga Research said the moderation in loans continued as Jan 2020 loans slowed to +3.5% YoY (Dec 2019: +3.9% YoY) to RM1.77 trillion.
Business moderated to +1.9% but households showed resilience at a modest +5% YoY. The moderation in business was led by a slight shrinkage in working capital (-0.4% YoY) while households continue to be resilient on account of robust mortgage (+7.2% YoY) but dragged by falling hire purchase of 0.8% YoY.
The moderation in loans can also be attributed to shrinking disbursements of 4.3% YoY outpaced by rebound in repayments of +2.5% YoY as business disbursements fell 6% YoY.
“Overall net financing in the system moderated to +4.4% YoY, dragged by loans but corporate bonds continued to be resilient at +8% YoY, ” it said.
Kenanga Research said that looking ahead, moderation in loans is expected to continue given the rising pandemic and economic uncertainty.
“Valuations of our banking universe are attractive and undemanding with most at Outperform: Alliance Bank (TP: RM2.90), AmBank (TP: RM4.20), BIMB (TP: RM4.95), CIMB (TP: RM5.60), Maybank (TP: RM9.05), MBSB (TP: RM1.10), Public Bank (TP: RM20.70) and HL Bank (TP: RM16.45). Affin (TP: RM1.85), and RHB Bank (TP: RM5.85) are at market perform.
“Our Top Pick is CIMB and Maybank benefitting from: (i) fiscal push (domestic and regionally), (ii) accommodative interest rates prevailing, and (iii) resilient Households plus attractive dividend yields of 5% and 8%, respectively, ” it said.
Did you find this article insightful?
75% readers found this article insightful