by HARIZAH KAMEL / photo by BLOOMBERG
THE risk-return profile of the banking sector continues to tilt favorably upwards, with most of the negative aspects being viewed by the market.
Hong Leong Investment Bank Bhd (HLIB) analyst Chan Jit Hoong said the woes of Covid-19 will likely end in 2022 while the state of the economy and the banking sector will fail. improve over time.
“In addition, valuations are not demanding and the market is sufficiently liquid,” he said yesterday in a research report.
For large banks, Chan likes Malayan Bank Bhd (Maybank) with a price target (TP) of RM 9.40 for its strong dividend yield and Public Bank Bhd (TP: RM 4.50) for its defensive qualities. , compared to CIMB Group Holdings. Bhd (TP: RM 5.10).
On mid-sized banks, RHB Bank Bhd (TP: 6.85 RM) is more favored than AMMB Holdings Bhd (TP: RM3), because the former has a higher Tier 1 capital ratio and a higher fair value via other comprehensive income reserves to cushion against the potential volatility of the yield curve.
Among smaller banks, BIMB Holdings Bhd (TP: 4.80 RM) and Affin Bank Bhd (TP: 2.15 RM) are preferred over Alliance Bank Malaysia Bhd (TP: 2.80 RM).
HLIB likes the former, given its positive long-term structural growth drivers and better asset quality, while the latter has the potential for value creation. Chan retained the sector’s “Overweight” and “Buy” call options on Maybank, Public Bank, RHB, BIMB and Affin Bank.
For the second quarter of 2021 (2Q21), Maybank’s net profit jumped 108% to RM 1.96 billion, but revenue fell 3.9% to RM 11.34 billion from RM 11.79 billion. RM to 2T20.
The Public Bank posted a 37.99% increase in net profit to RM 1.38 billion and higher revenues to RM 4.92 billion compared to RM 4.74 billion the previous year.
RHB’s profits reached RM701.34 million from RM400.77 million a year ago, while revenues fell 10.2% to RM2.93 billion from RM3.25 billion one year earlier.
Profits of BIMB and Affin Bank increased by 21% to 184.6 million RM and 75% to 117.95 million RM respectively.
Revenue for the quarter increased 9.6% to RM 1.25 billion for BIMB and 25.18% to RM 578.9 million for Affin Bank.
According to Chan, loan growth continued to slow in July 2021 to 3.1% year-on-year (YoY) given the weaker household segment (HH) as a slowdown was seen across the board.
Business loan growth edged up to 1.3% thanks to better working capital loans and is broadly within HLIB’s loan growth expectations for FY2021 (FY21) between 3% and 3, 5%.
Loan applications fell 28.4% year-on-year, with weak demand for credit for both households (-37.7%) and businesses (-13.1%).
In addition, credit authorizations also slowed down to -16.2% against -0.1% in June, not thanks to HH but the activity brought a little respite (11.4%).
Growth in deposits was maintained at 4% year-on-year despite the slowdown in the CASA (current account and savings account) to 12.9% against 14% in June, with foreign currency deposits (22.1%) coming from fill the void.
July’s loan-to-deposit ratio was fairly stable month-over-month at 87%, close to the 89% peak in February 2018, at which Chan said there was competition on deposits in the market. .
Asset quality showed some weakness as the gross impaired loan (GIL) ratio increased 5 basis points (bps) month-on-month to 1.67%, driven mainly by the HH segment (7 bps) while activity remained fairly unchanged (1bp).
“We expect the GIL ratio to continue to rise, but we would not be too concerned as the banks made a large preemptive provisioning in FY20 and we believe the credit risk has been properly factored in by the market, looking at the high net cost of credit assumption used for FY21 by us and by consensus.
“The government and Bank Negara Malaysia will remain supportive of helping distressed borrowers, limiting a significant deterioration in the GIL ratio,” Chan said.