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Analysts: Banking stocks to remain resilient in rising interest rate environment

01/09/2022 11:29 AM

KUALA LUMPUR, Sept 1 (Bernama) -- Kenanga Investment Bank Bhd remains confident that banking stocks will stay resilient in a rising interest rate environment and would lift the overall profitability of the sector.

In a note today, it said the current readings have also convinced that the industry's loans growth will remain supported by more buoyant economic activity due to the catch up with reopening of borders.

“The banks will also benefit from lower impairment allowances as asset quality risks diminish, leading to lower provisions,” it said. 

As such, Kenanga Investment has maintained its "Overweight" call on the banking sector, with top picks leaning towards dividend counters to shelter against uncertainties, being Maybank and Affin Bank. 

“In terms of top picks, we still like Maybank, which we highlight for its stellar dividend returns (seven to eight per cent) paired by its commendable asset quality readings in spite of being the leader in loans and deposits share,” it said. 

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

On loans growth, the investment bank also said July 2022 system loans grew by 5.9 per cent year-on-year (y-o-y), beating its expectation, after which it raised the 2022 industry growth target to between 5.5 and 6.0 per cent. 

“Household loans continued to increase but we believe it could taper off slightly on higher interest rates in subsequent months. This is also indicative of the slowing applications here while business loans remain supported by increasing working capital requirements,” it said. 

Concurring with Kenanga Investment, CGS-CIMB Securities Sdn Bhd has also reiterated an "Overweight" call on the sector, with potential re-rating catalysts from strong growth in net interest income in 2022 and 2023, underpinned by robust loans growth, hikes in overnight policy rate, and downtrend in loan loss provisioning.

Meanwhile, it also projected a loans growth of five to six per cent for the sector in 2022 in line with the industry's loans, which expanded by three per cent from December 2021 to July 2022, translating into an annualised growth rate of 5.2 per cent for this year.

“The robust loan applications and approvals in July 22 would help to support the industry’s loans growth, which we expect to be around six per cent y-o-y in the next one to two months,” it added. 


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