RHB Investment maintains ‘Overweight’ call on banks


RHB Investment Bank Bhd maintained an “Overweight” call on the banking sector, expecting it to be the best proxy for economic recovery and a key beneficiary of higher interest rates.

Its analysts Eddy Do Wey Qing and Fiona Leong stated November 2021 banking system data print pointed to a continued recovery for the sector with loan demand from business segments rising after declining the month before.

RHB Investment’s top picks are CIMB Group Holdings Bhd for its good progress in return on equity-lifting strategies, Malayan Banking Bhd (environmental, social, and governance leadership and attractive dividends) and AMMB Holdings Bhd (earnings recovery and undemanding valuation).

System loans in November 2021 continued to recover by a healthy 0.9% month-on-month (MoM) change, mainly caused by mortgages which increased by 0.7% MoM and working capital loans increased by 1.1% MoM.

Non-household loans grew by 0.96% MoM and outpaced household loans growth of 0.8% MoM.

The change in loan demand, the analysts stated, was an indication the recovery is gaining pace as the system loan applications increase by 11.6% MoM on a three-month moving average basis, as both applications from the household and business segment increased 17.3% and 2.4% MoM, with the latter marking a recovery from a 1.6% dip in October.

On a monthly basis, the growth in loan applications was robust at 15.5%, boosted mainly by the household segment as applications for mortgages and working capital loans improved by 12% and 34% respectively.

System deposits grew by 3.6% MoM and 8.2% in the 11th month of 2021 (11M21) annualised, resulting in the loan-to-deposit ratio decreasing to 83.2% from 85.9% in October.

The deposit growth in November was supported by the 2.8% MoM rise in the current account and saving account (CASA) deposits, with CASA growth momentum picking up by 11.1% YoY compared to October at 9.4%, while its system ratio improved MoM to 42% from 41.4%.

Gross impaired loan (GIL) in the system declined by 2.3% MoM but growth moderated to 0.6% year-on-year, as there were some upticks in the system for the purchase of consumer durable goods to 3.47% compared to October at 2.95%.

This led to a lower 1.47% system GIL ratio, compared to 1.52% in October.

Small and medium enterprise financing rose by 0.3% in October lifting the 10M21 annualised growth to 3.4%.

Loans to the wholesale and retail segment increased by 0.6% and education, health and others by 2.8% being the key drivers, although weakness was seen in loans to agriculture (declined by 1.1%).