household loan growth ended the year on a better note, up 5% y-o-y versus 4.7% in 2019. Households contributed 87% of the loan growth. Non-household loan growth, however, slipped to 1% y-o-y from 2.7% y-o-y in 2019. Bond issuances totaled RM104bil in 2020, down 19% y-o-y. Including bank loans, industry credit growth was a muted 1.8%. PETALING JAYA: The banking industry remains on firm footing, with most analysts reiterating a positive outlook for the sector despite a deceleration of loan growth in December. Data for the last month of 2020 came in unsurprisingly weak, said RHB Research in a report yesterday. The industry’s loan growth continued to decelerate from 3.8% year-on-year (y-o-y) at end-November to 3.4% y-o-y at end-December. The soft loan growth reflected the unprecedented economic challenges from the pandemic and various movement control orders (MCO). “January data is (also) unlikely to excite the market, given the reimposition of strict lockdown measures, which in turn, pose short-term risks to economic recovery, ” added the research house. However, Maybank IB Research noted that the figure was better than its forecast of 2.5%. In fact, household loan growth ended the year on a better note, up 5% y-o-y versus 4.7% in 2019. Households contributed 87% of the loan growth. Non-household loan growth, however, slipped to 1% y-o-y from 2.7% y-o-y in 2019. Bond issuances totaled RM104bil in 2020, down 19% y-o-y. Including bank loans, industry credit growth was a muted 1.8%. Deposit growth was 3.9% y-o-y in 2020, just slightly faster than the industry loan growth of 3.4%. Current account savings account (CASA) growth was a robust 19% in 2020. “Impaired loans continued to rise with the recommencement of loan repayments from Oct 1,2020, increasing RM867mil month-on-month (m-o-m) in December 2020 (+RM2.1bil m-o-m in November 2020) or 3.1% m-o-m. “The system’s gross impaired loan (GIL) ratio rose to 1.57% at end-December 2020 from 1.38% at end-September 2020. The m-o-m increase was across all consumer segments, while working capital GILs were stable, ” Maybank added. Maybank has maintained its “neutral” rating on the banking sector with “buy” calls on RHB Bank Bhd, Hong Leong Bank Bhd and BIMB Holdings Bhd. Separately, CGS-CIMB said the December banking statistics showed that loan growth for most banks was weaker in the fourth quarter of 2020 (Q4) versus Q3. Loan loss provisioning (LLP) also likely rose quarter-on-quarter (q-o-q), judging by the wider q-o-q increase in total provision of RM3.73bil in Q4 as compared to an expansion of RM2.37bil in Q3. “However, we envisage a q-o-q expansion in banks’ Q4 net interest income due to the absence of cuts in the overnight policy rate (OPR), ” it said. CGS-CIMB projects a stronger loan growth of 4%-5% in 2021, supported by a forecast gross domestic product (GDP) growth of 7.5% before adjusting for the impact of the MCO 2.0. It noted that there was downside risk to its 2021 loan growth projection, as MCO 2.0 could crimp 2021 GDP growth. “We estimate that every 1% point drop in our loan growth forecast will shave 0.8% from our 2021 net profit forecasts for banks, ” it said. It also expects to see a recovery in banks’ net profit growth to 19% in 2021, which may be adjusted due to MCO 2.0 and the spike in Covid-19 cases. “We believe that banks’ 2021 net profit will be driven by our projected 30% decline in the forecast 2021 LLP and a turnaround in the growth in net interest income (to low-to-mid single-digit rates in 2021 versus -5.4% in 2020), ” it said. With vaccines on the horizon, both CGS-CIMB and RHB have maintained their “overweight” stance on the banking sector. CGS-CIMB’s top picks are Public Bank Bhd, Hong Leong, RHB and AMMB Holdings Bhd.
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