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KUALA LUMPUR (Nov 19): Public Bank Bhd (PBB) and Hong Leong Bank Bhd (HLB) rank among the top scores for banks’ defensiveness against credit risks, according to CGS-CIMB Research.
The research house said the total scores for PBB and HLB are the highest, at 37 to 38 points, compared to 10 to 24 points for the other banks.
He said this shows a clear indication that the two banks are potentially the most defensive against any increase in the industry’s gross impaired loan (GIL) in 2021 stemming from the Covid-19 outbreak.
To address market concerns about the expected increase in GIL in 2021, CGS-CIMB Research analyst Winson Ng said there are five indicators to assess the bank’s defensive attitude, including the maximum GIL index in the last 20 years. , collateral coverage, loan loss and full mattress coverage. as well as credit exposure to residential mortgages.
“We recommend investors to take positions in PBB and HLB, which are our main options for the sector, as we believe that the NP (net income) of both banks will be the least affected among their peers in case the GIL index of the industry increases in 2021F. “Ng said in a note dated Nov. 18.
He said CGS-CIMB’s findings reveal that collateral coverage for the banks under its hedge is solid at an average of 79.3% in fiscal 2021 (FY21) and FY22, while the banks’ provision buffers they can cover up to 80.5% of an increase in GIL.
“Strong bank coverage gives us peace of mind to maintain our overweight rating on banks despite the expected increase in GIL in 2021F. A potential downgrade catalyst for banks is the projected rebound in net earnings growth to 14 , 8% in 2021F. Potential downside risks would be higher “GIL and provision for 2021F than expected,” Ng noted.
In addition, Ng said that the research house has also conducted stress tests on banks’ net earnings in fiscal year 21, assuming that GIL rates double at the end of December 2021 from levels at the end of June. 2020, and banks maintain credit loss coverage, including regulatory reserve. – 80% at the end of December 2021.
“The stress test results show that the impact would be the smallest in the FY21F NP for three banks, namely PBB, HLB and BIMB (Bank Islam), as the total provision cushion of these banks can cover the additional provisioning of the duplication of their GIL Ratios, “he added.
Going forward, the research house has an “additional” call to RHB Bank as it expects the new banking arrangement to fuel its revenue growth in fiscal year 21 ending December 31, 2021.
CGS-CIMB also has an “add” option for AmBank (AMMB Holdings Bhd) due to its attractive valuation of 7.1 times calendar year 2021 price-earnings.
At the time of writing, HLB shares fell 76 sen or 4.27% to RM17.02, valued at RM36.81 billion, while AMMB fell four sen or 1.19% to RM3.33 with a market value of RM10.07 billion and Public Bank is down 2.41% or 46 sen to RM18.60, for a market capitalization of RM72.21 billion.
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