1Q22 LLP likely stayed on downtrend
? Loan growth eased marginally from 4.7% yoy at end-Feb 22 to 4.6% yoy at
end-Mar 22 (+4.9% yoy for household loans; +4.5% yoy for business loans).
? We estimate banks’ 1Q22F LLP declined yoy and qoq, judging by the
RM1.36bn drop in the banking industry’s total provision in 1Q22.
? Reiterate sector Overweight premised on the expected continuous recovery
in earnings growth in 2022F, supported by OPR hikes and lower LLP.
A slight deceleration in loan growth in Mar 22
The banking industry’s loan growth moderated from 4.7% yoy at end-Feb 22 to 4.6% yoy
at end-Mar 22. There was a divergence in the growth trends of major loan segments as
growth in household loans improved from 4.7% yoy at end-Feb 22 to 4.9% yoy at end-Mar
22 while that for business loans eased from 5.5% yoy at end-Feb 22 to 4.5% yoy at endMar 22. Overall, loan growth in Mar 22 was in line with our projection of 4-5% for 2022.
Slower growth in Mar 22 leading loan indicators not a concern
The growth in both leading loan indicators softened – from 13% yoy in Feb 22 to 4.6% yoy
in Mar 22 for loan applications and from 18% yoy in Feb 22 to 12.5% yoy in Mar 22 for loan
approvals. We are not overly concerned about this as this was due to much higher bases
in Mar 21 vs. Feb 21. As such, we think that loan growth will be sustained at between 4.5%
and 5% in the next 2-3 months.
Keeping a rein on gross impaired loan ratio, for now
The industry’s gross impaired loan (GIL) ratio rose marginally from 1.53% at end-Feb 22
to 1.54% at end-Mar 22. We think that credit risks triggered by the Covid-19 pandemic have
yet to fully subside and hence we project a higher GIL ratio of 1.8-2.0% at end-Dec 22.
LLP likely lower in 1Q22F
The positive take from Mar 22 banking statistics was the RM1.36bn decline in total
provisions for the banking industry in 1Q22 vs. an increase of RM254.6m in 4Q21 (for qoq
comparison) and RM1.58bn in 1Q21 (for yoy comparison). Based on this, we believe that
banks’ loan loss provisioning (LLP) declined significantly yoy and qoq in 1Q22 compared
to the levels of RM1.7bn in 4Q21 and RM2.75bn in 1Q21, unless there was a spike in LLP
for overseas loans. This could help to offset earnings drags from the potential contraction
in banks’ 1Q22 net interest margin and higher 1Q22 tax expense from Cukai Makmur. This
also supports our projection for a 16% decline in banks’ LLP in CY22F.
Reiterate Overweight on banks
We retain our Overweight rating on banks as we project a recovery in earnings growth in
2022-23F. The potential re-rating catalysts are (1) expansion in net interest margin
following the expected hike in overnight policy rate (OPR) in 2H22F, and (2) downtrend in
LLP. Our picks for the sector are Hong Leong Bank, RHB Bank and Public Bank.