KUALA LUMPUR, June 3 — CGS-CIMB Securities Sdn Bhd (CGS-CIMB) expects the banking industry’s loan growth to peak at just over five per cent in the next one to two months and moderate in the second half of 2022 (2H 2022) due to higher inflation and interest rate hikes.
“This is in line with our expectation and projected loan growth of between four and five per cent for this year,” the research house said in a note today.
It also expects the industry’s loan growth to remain strong at above five per cent in May and June this year, given the robust expansion of 19.1 per cent in loan approvals in April.
Nevertheless, CGS-CIMB noted that the year-on-year (y-o-y) growth in loan applications has been weakening over the past two months, while loan applications contracted by 0.5 per cent y-o-y in April 2022.
“We see these as early signs of a slowdown in the industry’s loan growth in the medium term,” it said.
Meanwhile, it foresees banks’ gross impaired loan (GIL) to increase in ratio to its projected 1.8-2.0 per cent by end of December 2022, 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,” it said.
All in all, the research house retained its ‘overweight’ rating on banks, with potential re-rating catalysts including an expansion in net interest margin amid rising overnight policy rate and a decline in loan loss provisioning as the credit risks from the Covid-19 outbreak subside.
“Key potential downside risks to our ‘overweight’ call on Malaysian banks include weaker-than-expected economic growth in 2022 as this could cause banks to register higher-than-expected loan loss provisioning and softer loan growth.
“Our picks for the sector are RHB Bank Bhd, Hong Leong Bank Bhd and Public Bank Bhd,” it added. — Bernama
