Stronger economic outlook to support continued loans growth for Malaysia banks: UOBKH

Michelle Zhu

Published Thu, Feb 3, 2022 · 02:25 PM

MALAYSIA'S banks are poised to continue their strong loans growth momentum in 2022 following a "relatively commendable" showing in December 2021, according to UOB Kay Hian (UOBKH).

In a report issued on Thursday (Feb 3), analyst Keith Wee noted that the 4.5 per cent loan growth for the final month of 2021 came in at the upper end of UOBKH's 4 to 4.5 per cent estimates, supported by strong growth across the household and business segments.

He is now expecting the banking sector's system loans growth to come in closer to 5 per cent in 2022, versus the brokerage's initial estimates of 4.5 per cent for the year.

Wee remains positive on Malaysia's banking industry with a view that it is still trading at an attractive valuation below its historical mean.

In his view, the sector is also best positioned to benefit from the rising interest rate cycle as this could introduce positive surprises to net interest margin (NIM). He estimates sector NIM to potentially expand by 1 to 2 basis points (bp) after factoring in a single overnight policy rate cut in H2 of 2022.

Given the front-loading of "hefty" pre-emptive provisions over the past 2 years and in view of Malaysia's ongoing economic reopening, Wee sees net credit cost continuing its decline to 45 bp in 2022 and 35 bp in 2023, from 65 bp in 2021 and 80 bp in 2020.

These factors will also lend support to the banks' continued improvement in provisions well into 2023, said the analyst, which could in turn fuel double-digit earnings growth and average dividend yields of 5 per cent over the next 2 years.

"As the recovery theme remains in its early stage, our top picks have skewed to the higher beta banking names with strong earnings recovery growth potential. In this respect, we continue to like CIMB and RHB," he said.

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Malaysia economy Banks

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