LLP downcycle likely continues in Q2 2021

KUALA LUMPUR, Aug 2  -- CGS-CIMB expects bank's loan loss provisioning (LLP) to decline year-on-year and quarter-on-quarter in the second quarter of 2021 (Q2 21), given the smaller increase in banks’ total provision in the period.

In a note today, the research house said total provision for banks only increased by RM978.1 million in Q2 21 versus RM2.04 billion in Q1 21 and RM1.24 billion in Q2 20.

"We believe banks’ LLP stayed on the downtrend in Q2 21, likely helping to catalyse Q2 21 net profit growth and support our expected recovery in net profit growth to 9.4 per cent in calendar year 2021.

"This is the potential re-rating catalyst for our overweight call for the sector. Our picks for the sector are Public Bank, Hong Leong Bank and Maybank," it noted.

CGS-CIMB said impacted by the stricter lockdown in June, banks’ loan growth moderated from 3.9 per cent year-on-year at end-May to 3.4 per cent year-on-year at end-June.

The slowdown mainly came from the household loan segment, which expanded 5.2 per cent year-on-year at end-June from a growth of 6.1 per cent year-on-year at end-May.

Meanwhile, the momentum for non-household loan, mainly business loans inched down from 0.9 per cent year-on-year at end-May to 0.8 per cent year-on-year at end-June.

As for the first half of 2021, the industry’s total loan expanded by 1.6 per cent, translating into an annualised rate of 3.2 per cent.

"This was within our projected loan growth of 2.5-3.5 per cent for 2021, even if we factor in a slowdown in loan growth in second half 2021.

"Furthermore, the automatic loan moratorium, which banks started to offer on July 7, 2021, should lend support to banks’ loan growth as loans under moratorium would not be paid down within three-six months," it added.

-- BERNAMA