PETALING JAYA: The results of local banks in the fourth quarter of 2021 (Q4’21) indicate positive tidings ahead for the sector.
Going by January’s banking statistics where loan growth continued to accelerate, driven by both retail and business loans, some analysts have raised their 2022/23 earnings estimates for the sector. This comes as they revise loan growth forecasts, and lower credit cost assumptions.
Post the Q4’21 results, Kenanga Research upgraded the sector to “overweight” from “neutral” on the back of “clear tailwinds towards wider earnings expansion, among others from an economy-fuelled growth, lower asset quality risks, recovering trading activities and larger fee-based income”.
The research house said most banks anticipate at least one overnight policy rate hike in the second half of 2022 and this should translate to a slight bump to annualised net interest margin (NIM) thereafter.
“We anticipate non-interest income to stabilise from the industry-wide decline in 2021 as we operate in a more normalised trading and investing landscape. Meanwhile, the growth in fee-based income will help to build a more sustainable base for the banks,” it said in a report yesterday.
It noted that dividend payments were mostly back to pre-Covid levels, indicating that soundness in capital management has recovered and earnings surprises may come when the banks eventually write-back their provisions and overlays.
To recap, the banking system loans for January 2022 reflected a 4.7% increase year-on-year (y-o-y) with better numbers in both the household (4.7%) and business (4.6%) fronts. Kenanga said these were within its “5% to 5.5% industry growth expectations for now”.
Total impaired loans narrowed by 6% y-o-y, but saw its first month-on-month reversion since July 2021 with a 1% uptick in both household and business loans which translated to a higher gross impaired loans of 1.45% (December 2021: 1.44%). This was likely due to the lapse of the Pemulih moratorium in December last year, analysts said.
With an improved spending outlook and economic growth, MIDF Research forecast an industry loan growth of 5.0%, while TA Research had raised earnings estimates for the sector by 5.4% and 4.1% for 2022 and 2023.
TA said banks under its coverage registered loan growth of 1.9% quarter-on-quarter (q-o-q) and 5% y-o-y, surpassing Bank Negara’s 4.5% increase.
Sector earnings also saw an uplift from average NIM due to the gradual repricing of deposits and more favourable asset and liability mix during the year.
On banks’ Q4’21 performance, the research firm said that their combined net profit rose 26.8% q-o-q and 47.2% y-o-y to RM6.4bil.
As for 2021 net profit, they rose to RM21.2bil from RM18.8bil in 2020.
Where stocks are concerned, Hong Leong Investment Bank (HLIB) Research said “the sector’s risk-reward profile is skewed to the upside as valuations are undemanding and we are only at the cusp of an OPR hike upcycle with economic recovery, which benefit banks. As such, we remain bullish and employ a rather broad stock buying strategy in the first half of 2022”.
For large-sized banks, HLIB liked Malayan Banking Bhd for its strong dividend yield and Public Bank Bhd for its large potential headroom to perform management provision overlay writebacks.
As for mid-sized banks, RHB Bank is favoured for its high common equity tier one ratio and attractive price tag.
“For small-sized banks, Bank Islam Malaysia Bhd and Affin Bank Bhd are preferred stocks. We like the former for its positive structural growth drivers and better asset quality while the latter has special dividends potential after concluding the disposal its asset management arm,” HLIB added.