PETALING JAYA: Bank Islam Malaysia Bhd is expected to see a gradual recovery in financing growth, driven by the small and medium enterprise (SME) segment.

       This trend could lead to the banking group’s financing growth returning to pre-Covid-19 levels for the financial year ending Dec 31, 2023 (FY23).

       Based on a recent presentation by Bank Islam chief financial officer Azizan Abdul Aziz at the Invest Syariah Corporate Conversation (ISCC), CGS-CIMB Research forecast an improvement in the group’s financing growth from an estimated 7.1% in FY21 to 8.6% in FY22-FY23.

       “One of the sweet spots for its financing growth would be SME loans as the bank targets to increase the proportion of SME loans (over its total financing) from 3.7% at end-September 2021 to 5% by FY23,” the brokerage explained in its report.

       CGS-CIMB Research noted the recent slowdown in Bank Islam’s financing growth from 10.7% at end-December 2020 to 3.7% at end-September 2021 was a temporary occurrence due to lockdowns and weak credit demand amid a period of elevated new daily Covid-19 cases.

       “The bank expects its financing growth to gradually recover from the level in the third quarter of 2021 and be back to pre-Covid-19 levels in 2023,” it said.

       CGS-CIMB Research maintained its “add” call on Bank Islam, with an unchanged target price of RM3.46, citing the bank’s position as the biggest beneficiary from the expected hike in overnight policy rate (OPR) in 2022.

       “We have factored in an OPR hike of 25 basis points (bps) for our earnings forecasts for Bank Islam: every 25bps hike would raise our projected net profit for the bank by circa 7.1%,” the brokerage said.

       “The potential re-rating catalysts would be an expansion in net interest margin (arising from OPR hike) and a decline in loan loss provisioning in FY22-FY23,” it added.

       CGS-CIMB Research said it was positive on Bank Islam, pointing to the ratio of the bank’s financing under repayment assistance that had fallen from 42% in mid-2021 to less than 20% currently.

       “This signifies an improvement in its overall asset quality and an easing of the upward pressure on its gross impaired financing ratio,” it explained.

       CGS-CIMB Research noted Bank Islam had achieved a cost reduction of RM70mil in FY21, adding the bank expected a similar magnitude of cost savings in FY22.

       “For FY22, it is targeting a cost-to-income ratio of below 53% (versus our forecast of 51.5%); it expects the ratio to further improve to below 50% within the next three to five years,” it said.