Mixed outlook for banks

PETALING JAYA: There are mixed prospects for the banking industry going forward, but Maybank IB Research said that due to a slowdown in loan application growth, the outlook is subdued at this stage.

“Loan applications contracted across all major consumer segments and even mortgage applications saw growth drop to just 2.7% year-on-year (yoy) in August 2019 after having expanded at a rapid double-digit pace over the past three months,” the research house said in a note today.

Loan growth for August was stable at 3.9% yoy. Household loan growth was 4.6%, while non-household loan growth was 2.9%. Annualised loan growth was 2.9% in August 2019.

Overall deposit growth continued to slow down largely due to a slower pace of deposits from business enterprises. Industry deposit growth slowed down further to 4.6% yoy from 4.9% yoy in the previous month.

The loan-to-deposit ratio for the sector was 87.9%. Industry current account, savings account (CASA) expanded by 5.2% yoy, marginally lower than the 5.3% yoy registered in the previous month. CASA ratio remained stable at 25.7%.

The industry’s gross impaired loans (GIL) ratio was slightly higher at 1.61% in August versus 1.6% in July. On an absolute basis, GILs rose RM337 million month-on-month, mainly due to an increase in manufacturing GILs.

Maybank is retaining a neutral outlook on the sector, with a buy call on the smaller to mid-cap banks such as RHB Bank Bhd, AMMB Holdings Bhd, Hong Leong Financial Group Bhd, Alliance Bank Malaysia Bhd and BIMB Holdings Bhd.

CIMB Research is keeping its neutral call on the sector on concerns over margin contraction, due to the cut in the OPR, and an expected uptick in credit cost in 2019.

“On the flip side, banks’ dividend yields are attractive at 4.3% for CY19F. RHB Bank remains our top pick for the sector.”

Meanwhile, AmBank Research said it is maintaining its loan growth assumption for the sector at 4-5%, as well as its expectation of another Overnight Policy Rate (OPR) cut of 25 basis points in the second half of the year, which will be supportive of economic growth.

“Meanwhile, should Budget 2020 turn out to be mildly expansionary in line with market expectations, this will be positive on loan growth as well as mitigating the downside risk on the sector’s asset quality.”

AmBank is maintaining its overweight call on the sector as valuation and dividend yields of banks remain compelling. Its top picks remain as Malayan Banking Bhd (Maybank) and RHB Bank Bhd.

MIDF Research is also keeping a positive outlook on the sector as it thinks banking stocks are currently undervalued.

“The impact of the OPR cut will normalise and there are still positives for banks such as the low credit cost which should be able to alleviate any weakness in income.

“However, we also remain cautious due to prevalent uncertainties coming from external events such as the ongoing trade tension between the US and China,” it said.

MIDF’s picks for the sector are Maybank, CIMB Group Holdings Bhd and Public Bank Bhd.

source https://www.thesundaily.my/business/mixed-outlook-for-banks-EN1438116