PETALING JAYA: The banking sector’s credit card receivables (CCR) are expected to rebound from this month, following the lifting of the ban on interstate and international travels for fully-vaccinated individuals.
With consumers utilising their credit cards more, including for travel-related spending, it would augur well for the growth in credit card receivables, said CGS-CIMB Research.
The research house said the improvement in the CCR would not only lift banks’ loan growth, but will also enhance banks’ net interest margin (NIM) and fee income.
“Assuming the CCR would increase back to the pre-Covid-19 level of RM38bil to RM40bil by end-December 2022, the industry’s CCR could balloon by between 17.5% and 23.7% in 16 months (from end-August 2021 to end-December 2022),” it said in a note yesterday.
As at end-June 2021, the CCR accounted for 1.7% of the banking industry’s total loans.
Among the local banks, the proportion of CCR over total loans was the highest for Hong Leong Bank Bhd at 1.8%.
Meanwhile, the proportion was the lowest at only 0.5% for Public Bank Bdd and Affin Bank Bhd.
The banking industry’s CCR has been declining since last year following the implementation of the movement control order.
In 2020, the CCR fell by 12.5% and at end-August 2021, it dropped by 11.1% year-on-year, according to CGS-CIMB Research.
The brokerage pointed out that banks’ NIM and fee income would improve as the CCR bounces back, considering that the interest rates for credit cards are the highest among all types of loans at more than 10%.
In addition, banks earn fee income from the merchants for purchases using credit cards.
For instance, Bank Islam Malaysia Bhd recorded a total fee and commission of RM74.5mil from its (credit and debt) card business in the financial year of 2020, accounting for 36.3% of its overall fee income, it added.
“We see the expected recovery in the growth of CCR as another earnings driver for banks in 2022, although the impact on banks’ earnings would not be significant.
“This, to a certain extent, would help to support our projected core net profit growth of 7.3% for banks in 2022, which is the potential rerating catalyst for our ‘overweight’ call on banks.
“Our top picks for the sector are Public Bank, Malayan Banking Bhd and Hong Leong Bank,” said CGS-CIMB Research.
Despite the negative impact from the Covid-19 pandemic, the percentage of the banking industry’s CCRs that were overdue in payments, fell from 5.6% at end-Dec 2019 to 4.7% at end-Dec 2020 and 4.6% at end-Aug 2021.
“We think this was contained by the repayment assistance offered by banks to their financially-distressed borrowers,” it said.