PETALING JAYA: In spite of near-term recovery prospects, sentiment in the banking space continues to be soft.

       This could stem from uncertainties surrounding new Covid-19 variants, according to Kenanga Research.

       Meanwhile, net interest margins could also see some pressure, as competition for deposits heighten, possibly fuelled further by the entry of digital banks in the first quarter of 2022 and a possible overnight policy rate (OPR) hike in the second half of 2022.

       As such, Kenanga Research is maintaining its “neutral” rating on the banking sector.

       Within the sector, it has “outperform” calls on RHB Bank Bhd and Alliance Bank Malaysia Bhd.

       Kenanga Research also pointed out that in November 2021, system loans improved 4.3% year-on-year (y-o-y), driven by both household and business segments.

       “A more stable economic environment instilled greater confidence in taking on debt to increase spending, having been suppressed by economic and movement restrictions for the most part of the past two years,” it said.

       This is also reflected in heavier loan disbursements, up 31.3% y-o-y and 2.1% month-on-month (m-o-m).

       Loan repayments saw a 1.5% m-o-m decline but Kenanga Research suspected this could be due to business accounts making chunky repayments in the prior month when cashflow improved.

       Given the current trajectory, it said its 2021 system loans expectations were too conservative. To this end, a closing target of 4.5% to 5% was more plausible.

       This would coincide with the surge in loan applications, fuelled by business accounts seeking fresh cash injection to capitalise on the economic rebound.

       Kenanga Research also noted that household loans would likely grow too as prospective property owners try to make the most of low interest rates before a possible rate hike in the second half of 2022.

       Separately, TA Research anticipated a loan growth of 5.2% for the banking sector in 2022, with the expansion likely to be fuelled by a 4.6% and 5.6% y-o-y growth in corporate and consumer loans, respectively.

       As such, the brokerage retained its “overweight” rating on the banking sector.

       TA Research pointed out that there was healthier asset quality trends in November 2021, as the system’s total impaired loans declined 2.3% m-o-m but rose marginally 0.6% y-o-y.

       By segment, consumer-impaired loans rose by 6.1% y-o-y, while the impaired loans for businesses decreased by 3.1% y-o-y.

       The ratio of net impaired loan to a total net loan for the system stood at 0.91% (versus 0.93% a year ago). Repayments improved by 16.4% y-o-y.

       The gross impaired loans (GIL) ratio for consumer and business loans stood at 1.1% and 2%, respectively.

       By segment, the GIL ratios for personal use, residential and non-residential loans improved by 10 basis points to 1.8%, 1.2%, and 1.4%, respectively.

       The GIL for hire-purchase loans improved 20 basis points m-o-m to 0.5%.

       TA Research pointed out that in November, total deposits (excluding repurchase agreement) increased 5.8% y-o-y.

       Total current account and savings account (CASA) increased 11% y-o-y in November, compared to a 10.4% y-o-y growth in October. The CASA ratio stood at 32.6%.

       The system’s liquidity coverage ratio was at 145% (153% in October 2021), while the loan-to-fund ratio was at 81.1% (October 2021: 81.6%).