PETALING JAYA: With the vaccination programme gaining wider deployment, a recovery year is expected to for the banking sector, according to RHB Research.
Some research houses have an “overweight” call on the sector due to a more positive outlook of the economy,
RHB Research, which is maintaining its “overweight” stance, said: “January loans growth was off to a good start and we expect 2021 loans growth to be better at 4% year-on-year (y-o-y) (2020: +3.4% y-o-y) on economic recovery as the vaccines gain wider deployment.” Recently, Hong Leong Investment Bank Research and Kenanga Research echoed an “overweight” call on the sector.
However, Maybank has maintained its “neutral” rating on the banking sector.
January monthly applications were 6% month-on-month (m-o-m) lower, though higher +10% y-o-y, largely due to the 54% and 18% m-o-m decline in construction and auto loan applications.
System deposits grew 0.2% m-o-m (4.6% y-o-y) in January mainly boosted by higher current account savings account (CASA), likely due to MCO 2.0 where consumer and business sentiments were set back. CASA grew 3% m-o-m and lifted system CASA ratio to a new high of 40.5%, RHB Research said.
Fixed deposits continued to trend down (-0.9% m-o-m, 4.6% y-o-y) as banks optimise deposit mix, with fixed deposits being less attractive due to the depressed yields.
On asset quality, analysts are upbeat that it will improve this year.
While leading indicators were mixed and asset quality still showed weakness in the latest quarter, analysts agreed that with the Covid-19 vaccination rollout, supportive government measures and undemanding valuations would continue to provide optimism for the sector.
Sector gross impaired loans (GILs) crept up another 2.8% m-o-m in January – approximately 20% and 60% of the m-o-m increases were contributed by wholesale and retail and households.
“We believe the increase is more of a reflection of pandemic stress instead of post-moratorium normalisation – GILs were 6.9% y-o-y higher than January 2020 (pre-moratorium).
“GIL ratio was also four basis points (bps) m-o-m and y-o-y higher. That said, the rise in GILs is hardly surprising given the pandemic-ravaged economy.
“Plus, billions in pre-emptive provisions were and are still being set aside by the banks in anticipation of asset quality slippage, ” RHB added.
Small and medium enterprise (SME) loans grew 0.4% m-o-m in December 2020, largely lifted by +0.6% m-o-m increase in the wholesale and retail segment (+12.5% y-o-y, the biggest y-o-y growth contributor).
GILs were 2.7% m-o-m higher, mostly on the 27% m-om increase in construction loans.
GIL ratio was five bps m-o-m higher at 2.43%, but still lower that the 2.75% seen in December 2019, the research house noted.