Loans Growth Momentum Continues
System loans growth traction continued to gain momentum, finishing 2021 with a relatively commendable 4.5% growth vs our initial 4.0% expectation. Our positive view on the sector is premised on: a) attractive valuations of -1SD to historical mean P/B, b) potential NIM upside surprise given early stages of interest rate upcycle, c) continued credit cost improvement well into 2023, and d) attractive sector 2022/23 average dividend yields of 5%. Maintain OVERWEIGHT. CIMB is our top sector pick.
WHAT’S NEW
• Loans growth continues to gain momentum. Loans growth accelerated further to 4.5% in Dec 21 (Nov 21: 4.3%). The continued recovery in Dec 21 loans growth was underpinned by both household and business segments which registered growths of 4.3% (Nov 21: 4.1%) and 5.0% (Nov 21: 4.8%) respectively. Household loans growth was supported by residential property loans growth of 6.9%, while auto loans was flattish. Business loans growth was driven by stronger working capital of 7.4% (Nov 21: 7.3%). Overall system loans growth of 4.5% for 2021 came in at the upper end of our 4.0-4.5% estimates. The stronger economic growth outlook in 2022 could lend support to a continued loans growth traction where we
now expect system 2022 loans growth to come in closer to 5.0% vs our initial estimates of 4.5%.
• Solid leading growth indicators. Loans application expanded 27.9% yoy in Dec 21 (Nov 21: 21.5%) with strong growth across both household loans application (+25.4%) and business loans application (+32.4% yoy). Loans approval was up 27.0% yoy (Nov 21: 15.3% yoy) again fuelled by both household (24.8% yoy) and business (29.8% yoy).
• Ample liquidity. Deposit growth continued to outstrip loans growth, coming in at 6.3% yoy vs loans growth of 4.5% yoy. This led to a further improvement in loans-to-deposit ratio to 86.1% in Dec 21 vs 86.5% in Nov 21. As such, deposit competition remained benign which was evident in a continued contraction in fixed deposit (-1.5% yoy) while CASA growth remained healthy at +10.9% yoy.
• Stable GIL ratio due to targeted assistance. System gross impaired loans (GIL) ratio declined to 1.44% in Dec 21 (Nov 21: 1.47%) due to the masking effects of the ongoing loans moratorium. Given the front-loading of hefty pre-emptive provisions in 2020-21 coupled with the ongoing economic reopening, sector net credit cost is expected to continue declining to 45bp and 35bp in 2022 and 2023 respectively vs 65bp and 80bp in 2021 and 2020 respectively.
ACTIONS
• Maintain OVERWEIGHT. We remain positive on the sector is premised on the following key reasons: a) the sector is still trading at a relatively attractive valuation of -1.0SD below its historical five-year mean P/B, b) the sector remains the best positioned to benefit from the rising interest rate cycle which is only at its early stages, providing positive surprises to NIM and c) hefty pre-emptive provisions coupled with the ongoing economic re-opening will lend support to continued improvement in provisions well into 2023 which will help fuel double-digit earnings growth.