Kenanga: Pre-emptive loan provisioning may have sped up in Q2

KUALA LUMPUR: Early banking statistics suggest that pre-emptive loan provisioning may have accelerated in the second quarter of this year, said Kenanga Research.

The firm said month-onmonth loan growth in May remained muted and year-on-year growth was marginally lower at 3.9 per cent (April: 4.0 per cent).

The pace of lending to households continued to moderate and hit 3.2 per cent year-on-year in May versus April’s 3.3 per cent, driven by residential mortgages and personal loans.

Similarly, loans to businesses moderated to 4.9 per cent in May versus April’s 5.1 per cent.

“Not surprisingly, lending to construction and real estate remained soft. Household loan repayments and disbursements continued to be impacted by the loan moratorium, with repayment and disbursement levels 43 per cent lower from a year ago.

“However, we note a pick-up in households loan disbursements in May (44 per cent month-onmonth) thanks to disbursements for car and residential mortgages,” said Kenanga Research.

In terms of loan leading indicators, overall system loan applications and approvals were flat month-on-month, which the research firm said was somewhat disappointing as it had hoped to see a rebound as businesses reopened and individuals returned to work.

It has maintained its “neutral” call on the banking sector.

“In our view, banks’ earnings remain uncertain while the path to recovery is unlikely to be clear cut. In mitigation, the reopening of the economy and significant cuts to the policy rate have helped clear some overhang for the sector. Also, the Day One modification loss may not be as bad as feared,” it said.

Kenanga Research’s top pick is RHB Bank Bhd on its attractive valuations and solid capital ratios that could absorb higher loan allowances while maintaining a decent dividend payout.

“In addition, it is less impacted by the Day One modification loss.”

The firm also likes Hong Leong Bank Bhd as a defensive, “high quality” bank with a strong digital infrastructure that is poised to benefit from a post-Covid-19 environment.

Kenanga Research said AMMB Holdings Bhd (AmBank) had booked in aggressive pre-emptive loan provisioning during its fourth quarter results, which could help keep further allowances in check, adding that the management’s recent guidance on the Day One modification loss seemed much lower than initial estimates.

“AmBank’s valuations appear undemanding and we think the stock could be an attractive catch-up play,” it said.