Total provisions for banking sector to trend lower this year
KUALA LUMPUR: Total provisions for the banking sector, which fell by 0.3 per cent month-on-month (mo-m) or RM121 million in February 2022, are expected to trend lower this year as the number of new applications for relief assistance (RA) has tapered.
In a research note, AmInvestment Bank said that in the near term, banks are expected to hold on to the bulk of the conservative provision buffers built up since 2020 until they have greater visibility on the repayment behaviour of their consumer and small and medium enterprises loan borrowers.
“We continue to see room for write-backs in provisions, including management overlays due to the tapering of financial assistance to borrowers,” it said.
The research firm has also retained its ‘overweight’ stance on the banking sector, with RHB Bank (fair value (FV) RM7.10/share), CIMB (FV RM6.50/share) and Maybank (FV RM10/share) as its top picks.
“We remain positive on banks due to the expected improvement in their net interest income, with the interest rate uptrend benefitting underlying net interest margins, while provisions are projected to be lower for loan losses with the decline in RA for borrowers,” it said.
Meanwhile, AmInvestment said the industry’s gross impaired loan (GIL) ratio inched up to 1.5 per cent from 1.4 per cent in the preceding month, while the net impaired loan ratio increased slightly to 0.87 per cent.
“The GIL ratio remained low with only a portion of loans under broad repayment assistance having expired, while the take-up of the Financial Management and Resilience Programme (URUS) continued to stay low.
“We expect the industry GIL ratio to remain steady until the first half of this year (1H2022) as the broad repayment assistance (including the Pemulih moratorium) will only be expiring by end-June 2022.
“Thereafter, we anticipate an uptick in the asset quality ratio for the sector to below 2.0 per cent in 2H2022 amid the transition towards targeted repayment assistance,” it added. — Bernama