CGS-CIMB revises higher forecast of loan growth

by NURUL SUHAIDI / graphic by MZUKRI

CGS-CIMB Research forecast higher loan growth to 5.6% from 4.5% previously as the industry’s growth in June surpassed expectations to 5.6% year-on-year (YoY).

The research house noted that the revised forecast is also on the back of robust loan applications and approvals, which surged 41.7% YoY and 53% YoY respectively, to all-time highs in June.

“In view of these and the strong loan growth of 2.7% in 1H22 (from end-December 2021 to end-June 2022), we raise our projected loan growth for 2022 from 4%-5% previously to 5%-6%,” it said in a note today.  

Not only that, Winson noted that the momentum in the two major loan segments which are household and business loans also improved.

“This segment recorded from 5% YoY at end-May 2022 to 5.9% YoY at end-June 2022 for household loans and from 5.4% YoY at end-May 2022 to 5.8% YoY at end-June 2022 for business loans,” he added.

Thus, the research house reiterates ‘Overweight’ on banks, stating the robust loan indicator is the catalyst for higher loan growth in 2022.

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

The report stated that the industry’s gross impaired loan only inched up one basis point MoM to 1.65% at end-June 2022.

Meanwhile, total provision rose RM691.3 million quarter-on-quarter (QoQ) in 2Q22 compared to a decline of RM595.7 million QoQ in 1Q22.

“This indicates that the banks’ loan loss provisioning (LLP) likely increased QoQ in 2Q22, which is in line with our view that the sector’s LLP bottomed at RM1.04 billion in 1Q22,” it said.

However, it assumes that 2Q22 LLP was lower than the total of RM2.39 billion in 2Q21 and, hence, YoY decline.

“As such, we reaffirm our ‘Overweight’ call on banks, premised on the expected expansion in net interest margin amid the Overnight Policy Rate upcycle and our projected drop in loan loss provisioning in 2022,” it noted.

Nonetheless, it remains cautious of downside risks including weaker than expected economic growth in 2022-2023F as this could cause banks to register higher than expected loan loss provisioning and soft loan growth.