KUALA LUMPUR, December 6 – CGS-CIMB Research predicts potential net interest margin expansion and improved lending growth for banks in 2022, resulting from expectations of an overnight policy rate hike and from an improvement in projected loan growth from 2.5 to 3.5 percent in 2021 to four to five percent next year.
The research house estimates a drop in provisions for loan losses from 2021 to 2022, with banks having preloaded most of their provisions for credit risks linked to the Covid-19 pandemic since last year.
“Our top picks for the industry are Hong Leong Bank, Public Bank and RHB Bank,” he said in a note today, adding that he is maintaining his “overweight” position in banks.
He said that after hitting a low of 2.5% yoy in late August, the sector’s lending growth continued to recover from 2.9% yoy at the end of September to 3.3% in yoy in October due to the reopening of the economy and the relaxation of restrictions on movement.
“This was largely in line with our forecast of 2.5% to 3.5% loan growth for 2021. Growth in the two main loan segments accelerated from 3.2% year-on-year in September to 3.7% yoy in October for household loans and 2.3% yoy at the end. September at 3.1% yoy to end of October for business loans, ”he said.
CGS-CIMB said he was encouraged that the industry’s gross impaired loans fell 2.7% month-on-month (mom) to reach RM28.7 billion in October, although this was been contained by the repayment assistance offered by banks to their borrowers.
Likewise, AmInvestment Bank said that October 2021 saw stronger loan growth in most sectors after the economy reopened, with the exception of construction, real estate, finance, insurance and business services.
“The level of household loan approvals has increased but has been offset by lower non-domestic loan approvals,” he said.
In addition, the research house said that the total provisions for the sector continued to increase by 0.3% month-on-month or RM 114 million in October 2021.
“We believe that the banks have continued to complete management overlays to be cautious on provisions. We assume that the initial start of the Pemulih moratorium in July 2021 saw requests for financial assistance increase, ”he said.
On a heartwarming note, he said after the initial phase, new listings for the Pemulih moratorium declined. – Bernama