“With a still-high level of uncertainty on outlook, banks are targeting moderate loan growth in 2022. We expect deposit growth to keep pace, keeping loan-to-deposit ratio at high 80% levels, thereby reducing the need for aggressive deposit competition,” RHB Research said.
PETALING JAYA: Notwithstanding heightened risks brought about by geopolitical tensions, institutional investors “remain constructive on banks” and see the sector benefiting from reopening of the domestic economy.
RHB Research, which held 11 meetings with institutional investors over the past week, said that overall, there was limited pushback on the firm’s call to maintain its overweight sector rating.
However, it said “there was a preference for more defensive stocks given the Russia-Ukraine conflict”.
The concerns were mainly on asset quality, relating to further surprise provisions and potential net interest margin (NIM) pressure on intensified competition for current account savings accounts (CASA), said the research firm.
It also believed that NIM slippage will be manageable in financial year 2022 (FY22).
“With a still-high level of uncertainty on outlook, banks are targeting moderate loan growth in 2022. We expect deposit growth to keep pace, keeping loan-to-deposit ratio at high 80% levels, thereby reducing the need for aggressive deposit competition,” it said in a report.
It noted that while CASA growth had moderated on the pick-up in economic activities, banks believe that CASA secured in the past two years was stickier versus that of 2015- 2016 period.
“This reinforces our view that banks with stronger CASA franchises will be better positioned to sustain NIMs,” it said.
The research firm added that Malaysian banking stocks under its coverage have guided for stable to single-digit declines in NIMs for FY22, with the modest compression coming from funding cost pressures and the widely expected 25 basis points overnight policy rate hike in the fourth quarter (Q4) of 2022 having no material uplift on NIMs
On provisions, it said there were lingering concerns following the surprise provisions seen in the recent Q4 of 2021 results although it was generally agreed that banks’ asset quality has improved on generous provisions on Covid-19-affected businesses and higher risk accounts.
“These include downside from exposure to commodity traders, and additional provisions on high risk accounts such as oil & gas (O&G) and tourism-related.
“We think lumpy provisions ahead should be fairly limited, as banks have taken quite a fair bit of provisions over the past two years,” it added.
According to the research firm, CIMB Group Holdings Bhd
guided for more provisions in Q1 of 2022 relating to the double crediting issue, while we should also see residual provisions from AMMB Holdings Bhd in relation to its O&G exposures.
As for the potential impact from new digital banks, which is slated to be awarded next week, RHB Research said it should have limited disruptions to the conventional banks in the near term.
“We believe the banks are well-positioned to fend off potential competition from the new digital banks, if any,” it added.
