PETALING JAYA: The loan growth momentum continues to pick up, with March 2022 loans gaining 4.6% year-on-year (y-o-y).

       However, deposits growth lost some traction, while asset quality came in slightly weaker.

       Despite this, analysts believe that the ensuing economic recovery would bode well for the sector and uplift banks’ asset quality as income streams become more sustainable.

       “In our opinion, the sector’s risk-reward profile is still skewed to the upside as valuations are undemanding and we are only at the cusp of an overnight policy rate (OPR) hike upcycle with economic recovery, which benefits banks.

       “As such, we remain bullish and employ a rather broad stock buying strategy in the first half of 2022 (1H22),” Hong Leong Investment Bank (HLIB) Research said in a report yesterday.

       The research firm expects the net interest margin of the sector to be relatively stable in financial year 2022 (FY22), as better asset reinvestment yields and a possible OPR increase could offset the competitive deposit taking landscape.

       Meanwhile, Kenanga Research said that an annual loan growth of 5% to 5.5% was plausible for 2022, given the current ongoing economic activity.

       This, it added, was in line with the firm’s in-house 2022 gross domestic product forecast of 5% to 5.5%.

       Maintaining an “overweight” call on the sector, it said the ongoing macro factors presented “more tailwinds than headwinds” for the banking sector.

       “It appears that Malaysia is mostly unaffected by the Russia-Ukraine conflict as neither country is a meaningful trade partner, albeit weighing down global investor sentiment,” said Kenanga Research.

       Similarly, UOB Kay Hian (UOBKH) Research has pencilled in a stronger 5% loan growth versus the 4.5% in 2021.

       The research firm sees continued credit cost improving well into 2023, and the attractive 2022/23 average sector dividend yield of 5% being among factors that support its positive view on the banking sector.

       “System loan growth remained stable, while loan approvals and applications registered positive y-o-y growth for the sixth consecutive month,” it said.

       It noted that loan applications for March were driven by business loan applications, which charted a 13.7% increase y-o-y, while loan approval was up 12.5% y-o-y, fuelled by both businesses and households.

       The system gross impaired loan (GIL) ratio remained relatively stable at 1.54% in March (against January’s 1.5% and February’s 1.53%) despite banks having started to gradually unwind their loan repayment assistance programme under the Pemulih scheme.

       “Anyhow, as banks have provided sufficient management overlays, we continue to expect a divergence in the GIL ratio and net credit cost trend in 2022 with the sector net credit cost declining to 40 basis points (bps) in 2022 versus 50bps in 2021 and with the GIL ratio potential increasing to 4% by end-2022 or early 2023,” added UOBKH Research.