CGS-CIMB expects slower loan growth for 2H22


CGS-CIMB Securities Sdn Bhd believes loan growth has peaked at 5% year-to-date and expects slower loan growth for the banking sector in the second half of the year (2H22) due to higher inflation and interest rates. 

Its analyst Winson Ng added that this scenario is in line with CGS-CIMB’s expectation and projected loan growth of between 4% to 5% for the sector in 2022.

“We expect the industry’s loan growth to remain strong (above 5%) in May and June, given the robust expansion of 19.1% in loan approvals in April,” Winson wrote in a research note today.

He said the improvement mainly came from the business loans segment which recorded a stronger momentum of 5.7% year-on-year (YoY), while the growth in household loans sustained at 4.9% YoY as at end of April.

The analyst noted that the growth in loan applications has been weakening over the past two months while loan applications contracted by 0.5% YoY in April.

“We see these as early signs of a slowdown in the industry’s loan growth in the medium term,” he wrote.

He noted that banks’ gross impaired loan (GIL) ratio rose by only two basis points (bp) month-on-month to 1.57% in April.

“We are encouraged that the unwinding of the repayment assistance (offered to borrowers) by banks did not lead to any significant deterioration in their asset qualities as the industry’s GIL ratio rose by only seven basis points in the fourth month of 2022,” he further said.

The brokerage expects an increase in banks’ GIL ratio to its projected 1.8% to 2% by end of December this year, as the credit risks from Covid-19 have yet to fully subside. 

“Moreover, high inflation and interest rate hikes could exert further pressure on banks’ asset quality but we do not expect the impact to be significant,” he added.

CGS-CIMB reiterated its ‘Overweight’ rating on banks with rerating catalysts including an expansion in net interest margins amid rising Overnight Policy Rate and a decline in loan loss provisioning as the credit risks from the Covid-19 outbreak. 

CGS-CIMB’s top sector picks RHB Bank Bhd, Hong Leong Bank Bhd and Public Bank Bhd.