Bank Negara Malaysia (BNM) released banking system data for December 2020, showing that December’s credit card transactions surged on seasonal demand as usual. Though falling short from the previous year, Macquarie Equities Research (MQ Research) considers this healthy, considering the tightened CMCO measures implemented in October.

Key Points

• Bank Negara has released banking system data for December 2020.
• December consumption indicator (credit-card transactions) surged on seasonal demand, but still -11% year-on-year (y/y); healthy, considering Conditional Movement Control Order (CMCO).
• Post-moratorium repayments remained stable, high debt recycling in non-consumer book to end the year. Consumers continue to lead applications.

Resilience, still

• December saw the usual seasonal surge in credit card transactions, despite the tightened CMCO lockdown conditions that were introduced since October; +21% month-on-month (m/m), but -11% y/y. Adjusting for foreign cardholders (removing inbound/tourism-related spend), credit card transactions were only down -1.2% y/y. While the further tightened MCO introduced mid-January will exert further pressure, MQ Research expects underlying consumption to prove very resilient in 2021.
• Consumer loan repayments also continued to stabilise post-moratoria, an encouraging sign of households’ resilience. Furthermore, applications (indicative of credit demand) continue to show a stark divergence between consumers (driven by housing/auto) and non-consumer borrowers. Continued demand for aforementioned big-ticket items suggests relatively high consumer confidence, and also (in MQ Research’s view) reduces the pressure on the central bank to further lower interest rates. Overall margin pressure on the banks bottomed out in 4Q20 and should recover as net interest margin (NIM) compression unwinds.

The numbers

• Loans growth slipped to a low of +3.4% y/y in December (Nov: +3.8%), dragged down by non-consumer borrowers. MQ Research believes the weakness is not broad-based, but driven by the asymmetrical recovery of the economy (e.g. tourism/hospitality/ aviation). A surge in repayments/disbursements among non-consumer borrowers, suggests high credit recycling towards the year-end as well. Banks indicated chunky repayments by corporates, as the credit was not needed in a low-growth environment. Deposits rose slightly to +4.5% (Nov: +4.4%), and more importantly, current account and savings account (CASA) ratios finally peaked and eased to 30% (Nov: 30.7%). Overall liquidity in the system tightened marginally, with loan-to-deposit ratios falling to 87.6%. Liquidity coverage ratio also fell to 148% (Nov: 150%), still healthy. Capital ratios continue to rise to historical highs, as most banks withheld dividends in 2020.
• Loan impairments continued to rise (as expected, post-moratoria) led by unsecured loans (+3% m/m) and lending to the real-estate sector (+20% m/m); gross impaired loan (GIL) ratio, creeping up to 1.57%, is still relatively low by historical benchmarks due to loan moratoria. MCO could be a catalyst for banks to bring forward recognition of impaired loans in 1Q21.

Outlook

• MQ Research reiterates its constructive view on the sector; FY21 should see sequential deceleration in loan provisions. MQ Research’s top picks are RHB/CIMB, followed by Public as its preferred defensive name.

Source: Phillip Capital Research - 5 Feb 2021