CIMB Research still neutral on bank stocks

PETALING JAYA: CIMB Research is maintaining a neutral call on bank stocks because of weak loan growth with the top bank stock pick being RHB Bank Bhd.

The research house projects stable loan growth in the range of 4% to 5% this year in view of the lack of catalysts. It said in a report that the industry’s loan applications fell by 2.1% in December year-on-year compared to a 15.8% rise in the previous month with an across-theboard slowdown in major loan segments.

The momentum in loan approvals also eased to 15.4% year-on-year in December from 22.3% in November, pulled down by the contraction in the auto loan segment.

“Based on the above, we think the industry’s year-on-year loan growth could improve in January to February 2018 before weakening in March 2018,” CIMB analyst Winson Ng said in the report, adding that the potential rise in credit costs from the adoption of MFRS 9 this year was also a concern. MFRS 9 refers to financial reporting standards that banks incorporated in Malaysia have to follow.

Ng noted that the potential downside risks for banks include a rise in banks’ loan-loss provisioning due to the adoption of MFRS 9 while the potential upside risks to the neutral call were a pick-up on loan growth and margin expansion.

Data released by Bank Negara showed that the industry’s gross impaired loan ratio fell by 8 basis points last year to a record low of 1.53% as at end-December from 1.61% at end-December 2016.

“The end-2017 number was below our projected 1.8%. However, loan loss coverage declined from 86.4% at end-2016 to 82.9% at end2017. We are projecting a higher gross impaired loan ratio of 1.8% at end-2018, with potential risks coming from the loans to developers and oil and gas companies, in our view,” Ng said.

He said loan growth last year was within the house’s expectation with the industry recording 1.1% monthon-month growth in December compared with loan expansion of 3% in the first 11 months of last year. “This helped Malaysian banks achieve a loan growth of 4.1% for 2017, within our projection range of 4% to 5%,” Ng said.

He pointed out that this was weaker than the 5.3% expansion in 2016, noting that the key driver of loans in December where an 11.2% month-on-month surge was seen was in the loans classified as “others”.