Analysts: Bank stocks will remain resilient in a rising interest rate environment

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Thursday Sep 01, 2022 11:42 AM MYT

KUALA LUMPUR, September 1 ― Kenanga Investment Bank Bhd remains confident that banking stocks will remain resilient in a rising interest rate environment and boost the sector’s overall profitability.

In a note today, he said current readings also provide confidence that industry loan growth will continue to be supported by more buoyant economic activity due to catch-up with the reopening of borders.

“Banks will also benefit from reductions in impairment provisions as asset quality risks decline, leading to lower provisions,” he said. As such, Kenanga Investment maintained its “overweight” call on the banking sector, with the top picks leaning towards the dividend counters to hedge against uncertainty being Maybank and Affin Bank.

“In terms of top picks, we still like Maybank, which we highlight for its excellent dividend yields (seven to eight percent) coupled with its commendable asset quality readings despite being the loan share leader. and deposits,” he said.

For small cap banks, she believes Affin Bank presents opportunities with the return of earnings growth prospects, thanks to its Affinity in Motion (AIM22) initiatives.

On loan growth, the investment bank also said July 2022 system loans grew 5.9% year-on-year (YOY), beating its expectations, after which it raised the industry growth target for 2022 between 5.5 and 6.0%.

“Loans to households have continued to rise, but we think they could decline slightly due to higher interest rates in the coming months. This also indicates slowing demand here as business loans remain supported by increasing working capital requirements,” he said.

In agreement with Kenanga Investment, CGS-CIMB Securities Sdn Bhd also reiterated a call for an “overweight” to the sector, with potential catalysts for repricing strong net interest income growth in 2022 and 2023, supported by a robust loan growth, increases in overnight lending policy rates and a declining trend in loan loss provisioning.

Meanwhile, he also projected loan growth of 5-6% for the sector in 2022, in line with industry loans, which increased by 3% from December 2021 to July 2022, translating into a rate of annualized growth of 5.2% for this year.

“Robust loan applications and approvals on July 22 would help support industry loan growth, which is expected to be around 6% year-over-year over the next one to two months,” he added. ― Bernama

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