Loan demand to buoy Malaysia banking sector

Maybank is among the top picks for Kenanga Research. It cites the bank’s high dividend yield of around 7% to 8% and market leader position in terms of loans and deposits for its choice.

PETALING JAYA: With loan demand in Malaysia expected to remain healthy over the medium term, banks could be in for further gains in the coming months.

This optimism stems from the continued recovery of the country’s economy, which is expected to drive loan growth, particularly in business lending.

In addition, with interest rates rising, banks are also expected to post solid growth in deposits, which is the main source of funding for their operations.

In its monthly highlights for October 2022, Bank Negara revealed that total loan growth stood at a robust 6.5% year-on-year (y-o-y), or 0.5% month-on-month (m-o-m), driven by both the household and business sectors amid a better economic landscape.

Total deposits, on the other, grew 6.9% y-o-y, or 0.4% m-o-m, for the month. The industry’s loan-to-deposit ratio remained relatively stable at 85.9%.

According to Kenanga Research, healthy domestic economic prospects will keep loan demand strong. “More inflows are expected from businesses mainly on greater working capital needs, as household demand for debt could wane on higher borrowing costs,” the brokerage wrote in its report yesterday.

“There are concerns arising from recessionary risks that could put a drag on asset quality as certain accounts are already showing signs of delinquency.

“Additionally, unforeseen shifts in global macros may stress overall business activities. With that in mind, we continue to make our picks selectively, skewing to names that have defensive angles and firm market positioning,” it added.

Kenanga Research maintained an “overweight” call on the sector.

“With the overnight policy rate (OPR) having seen four 25-basis-point (bps) hikes to 2.75%, we believe the banking sector will once again be in a highly competitive cycle as banks strive to optimise their funding yields,” it said.

It anticipated one more 25bps hike in OPR in the first quarter of 2023.

Kenanga Research expected total deposits to expand by 6.5% to 7% in 2022, as interest in higher-yielding products could come in the remaining months, riding on more rewarding rates.

Its top sector picks favouring banks with optimal loans (high small and medium enterprises (SMEs) and low fixed-rate financing) and deposit books (high current-account-savings-account or CASA ratio) with added merits.

These include CIMB Group Holdings Bhd, Malayan Banking Bhd (Maybank) and Alliance Bank Malaysia Bhd (ABMB), with target prices set at RM6.40, RM10.40 and RM4.20, respectively.

It favoured CIMB for its defensive non-interest income reporting as trading performances are supported by its regional entities; solid CASA, which is one of the highest among large-cap banks, and four-star rating for its environmental, social and governance efforts.

As for Maybank, Kenanga Research cited the bank’s high dividend yield of around 7% to 8% and market leader position in terms of loans and deposits.

As for ABMB, it liked the bank’s leading position in the SME loan segment, CASA mix and solid return on equity of 10% and dividend yields of around 6%.

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Loans , deposits , OPR , SMEs , CIMB , Maybank , Alliance


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