PETALING JAYA: Despite sustained loan growth thus far, the local banking sector continues to face subdued prospects for the remainder of 2020.
On that note, analysts have broadly maintained their “neutral” stance on the sector, citing the persistent risks, particularly arising from the economic fallout of the coronavirus (Covid-19) pandemic.
Kenanga Research, for instance, said it was of the opinion that banks earnings ahead would remain uncertain and volatile, as a combination of factors, such as Day One modification losses and rising credit cost, kick in later.
“The path to recovery too is unlikely to be clear cut. In mitigation, the reopening of the economy and significant cuts to policy rate has helped clear some overhang for the sector, ” the brokerage said in its report yesterday.
“Near term key upside risk to our sector call is a liquidity-fuelled rally and/or rotational play into value or cyclicals. Key near-term downside risk is the emergence of a Covid-19 second wave, ” it added.
Kenanga Research preferred sector picks were RHB Bank Bhd and Alliance Bank Malaysia Bhd (ABMB). It ascribed “overweight” ratings for both stocks, with target prices of RM5.15 for RHB and RM2.30 for ABMB.
CGS-CIMB Research, on the other hand, said while 2020 loan growth could exceed its forecast, the upside potential to its projected loan growth would help to partly cushion the elevated loan loss provisioning (LLP).
“The positive surprise in April was the sustained loan growth despite the negative impact from the Movement Control Order (MCO). With this, there could be upside potential to our projected loan growth of 0% in 2020, ” the brokerage wrote in its report.
“Conversely, the April statistics showed that the LLP for banks would stay elevated in the second quarter of 2020 due to additional pre-emptive provisioning for the Covid-19 outbreak, ” it added.
For upside potential, it noted, every one percentage point increase in its loan growth projection would raise its projected sector’s 2020 net profit by around 0.8%.
“However, we still see the risk of a slowdown in loan growth in upcoming months due to the gloomy economic environment, as reflected by our economist’s projected decline of 4.3% in 2020 gross domestic product, ” it said.
CGS-CIMB’s top sector picks were Public Bank Bhd and RHB, with target prices of RM19.13 and RM5.60, respectively.
Despite the disruption caused by the MCO, the industry’s loan growth was sustained at 4% at end-March and end-April, Bank Negara data showed, driven by business-loan growth, while household-loan growth moderated.
The industry’s gross impaired loan (GIL) ratio improved to 1.58% at end-April from 1.59% at end-March.
However, banks’ total provisioning in April rose RM737.8mil or 3.2% from the previous month, and loan-loss coverage increased to 84.9% at end-April from 81.7% at end-March.
Meanwhile, TA Research said it was expecting more caution ahead, with loan growth to remain tepid, especially with the implementation of the MCO.
The brokerage cut its 2020 loan growth forecast to 2.5% from 4% previously, underpinned by a 1.6% and 3.7% increase in consumer and business loans, respectively.
Reiterating its “underweight” stance on the sector, TA Research hmaintained its “sell”calls for Public Bank, ABMB, RHB, AMMB Holdings, Malayan Banking Bhd, Hong Leong Bank Bhd, CIMB Group Holdings Bhd and Affin Bank Bhd.
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