Affin Hwang Cap keeps 6pc target for banks

KUALA LUMPUR: Affin Hwang Capital has maintained its target of six per cent growth for the banking sector’s outstanding system loan this year despite a short in May numbers on a yearon-year (y-o-y) basis.

In its note yesterday, Affin Hwang said on a y-o-y basis, outstanding system loans were up 5.5 per cent, or an annualised 2.8 per cent.

“Nonetheless, we maintain our target, as we believe that moderation in loan repayments and strong private investments will underpin the system loan growth.

“Key sectors driving loan growth are households, retail and trade, construction, real-estate and transportation.

“Ample domestic liquidity remains a non-issue, as implied by the system’s LCR (liquidity coverage ratio) of 140 per cent.”

Affin Hwang said May’s loan applications and approvals picked up by a robust 16.8 and 15 per cent month-on-month (m-om), respectively, while disbursements grew by a modest 4.8 per cent m-o-m after a pullback in April for both the household and business segment.

Besides that, domestic banking system’s average lending rate (ALR) has remained relatively steady from April to May, improving by two basis points m-o-m to 4.61 per cent.

“We believe this is due to an improved loan mix and higher loan pricing, most likely in the business-loan segment rather than in consumer loans.

“Given pricing discipline, most banks have been able to stem the decline in NIM (net interest margin) in 2016 — which averaged at 2.26 per cent, while in the first quarter, the sector averaged at 2.34 per cent.

“In our view, this was also supported by a higher CASA (current account, savings account) growth (8.9 per cent y-o-y in May 2017) and CASA ratio of 26.7 per cent as at May 2017 due to more transactional activities taking place in the system such as purchase of financial securities and e-commerce sales,” it said.

Affin Hwang has maintained its “overweight” call on the banking sector, foreseeing sector-earnings growth of 10.6 per cent y-o-y this year, followed by a more modest 3.8 per cent y-o-y next year and 4.1 per cent y-o-y in 2019.

“Favourable domestic demographic trends (driving consumption and housing needs), ample infrastructure projects in the pipeline and accommodative monetary policy are supportive reasons for the growth in earnings,” it said.

Affin Hwang’s top picks for the sector include Public Bank Bhd, CIMB Group Holdings Bhd and Malayan Banking Bhd. Farah Adilla