Expect slower loan growth in 2H22F
? Loan growth picked up from 4.6% yoy at end-Mar to 5% yoy at end-Apr 22.
We expect the growth to peak at just over 5% and moderate in 2H22F.
? GIL ratio rose by only 7bp in 4M22 to 1.57% at end-Apr 22, despite banks’
unwinding of repayment assistance offered to borrowers.
? Reiterate sector Overweight premised on the expected expansion in net
interest margin (amidst OPR upcycle) and decline in loan loss provisioning.
A pick-up in loan growth in Apr 22
The banking industry’s loan growth picked up from 4.6% yoy at end-Mar 22 to 5% yoy at
end-Apr 22. The improvement mainly came from the business loans segment which
recorded a stronger momentum of 5.7% yoy at end-Apr 22 vs. 4.5% yoy at end-Mar 22
while the growth in household loans sustained at 4.9% yoy at end-Mar 22 and end-Apr 22.
Expect loan growth slowdown in 2H22F
We expect loan growth to peak at just over 5% in the next 1-2 months and moderate in
2H22F, due to higher inflation and interest rate hikes (smaller capacity to borrow and higher
borrowing costs). This is in line with our expectation and projected loan growth of 4-5% for
Signs of slowdown already visible
We expect the industry’s loan growth to remain strong (above 5%) in May 22 and Jun 22,
given the robust expansion of 19.1% in loan approvals in Apr 22. Nevertheless, the yoy
growth in loan applications has been weakening over the past two months while loan
applications contracted by 0.5% yoy in Apr 22. We see these as early signs of a slowdown
in the industry’s loan growth in medium term.
A manageable increase in GIL ratio
Banks’ gross impaired loan (GIL) ratio rose by only 2bp mom to 1.57% in Apr 22. We are
encouraged that the unwinding of the repayment assistance (offered to borrowers) by
banks did not lead to any significant deterioration in their asset qualities as the industry’s
GIL ratio rose by only 7bp in 4M22. We continue to expect an increase in banks’ GIL ratio
to our projected 1.8-2.0% by end-Dec 22, as the credit risks from Covid-19 have yet to fully
subside. Moreover, high inflation and interest rate hikes could exert further pressure on
banks’ asset quality but we do not expect the impact to be significant.
Reiterate Overweight on banks
We retain our Overweight rating on banks. Potential re-rating catalysts include (1) an
expansion in net interest margin amid rising overnight policy rate (OPR; starting from May
22), and (2) a decline in loan loss provisioning as the credit risks from Covid-19 outbreak
subside. Our picks for the sector are RHB Bank, HLB and PBB.