KUALA LUMPUR: Bank Islam Bhd may still have long-term structural growth drivers and better asset quality among smaller-sized banks, despite higher financing repayment assistance (RA), said Hong Leong Investment Bank Bhd (HLIB).
HLIB analyst Chan Jit Hoong said Bank Islam's financing RA made up about 45 per cent of its books.
But most of it was taken up given its easy availability and not because many of their borrowers saw loss of employment or heavy pay cuts.
"We understand 50 per cent of its retail financing portfolio are government and government-link companies employees. Besides, 60 per cent to 70 per cent of its personal financing segment are salary deduction packages while for mortgage is more than 70 per cent," he said in a report today.
Additionally, he said the B40 group constituted only less than 10 per cent of the bank's consumer book.
"As such, its prudent financial year of 2021 to 2022 net credit cost (NCC) guidance of 30 basis point (bp) to 35bp is intact as we have imputed 27bp to 31bp into our model for both FY21-FY22."
HLIB has maintained a "Buy" call but with lower target price of RM3.45 from RM4.80.
The firm said Bank Islam's FY21-FY22 net financing margin (NFM) could shrink and its financing growth may taper but still a tad above industry average.
The bank's cost-to-income ratio is likely to inch up but a new dividend payout may be at 50 per cent, said HLIB.
"Overall, we cut FY21-FY23 profit by 6.0 per cent and 13 per cent to strip away Syarikat Takaful's income contribution and group level finance cost from sukuk retirement."
Chan said Bank Islam may post softer FY21 top-line but recovery could be seen in succeeding year.
"The management is still keeping its FY21 NFM guidance at 2.2 per cent to 2.4 per cent, despite travelling at mid-2.4 per cent in the first half (1H) of 2021 due to competitive deposit pricing at its corporate segment.
"This marks a 1.0 per cent to 21 per cent compression against FY20 versus our estimates of -13bp. However, the FY21 financing growth guidance of +7.0 per cent has been toned down to +3.0 per cent to 4%.0 per cent
"This is still a tad quicker than the expected sector average 3.0 per cent to 3.5 per cent expansion. For FY22, we anticipate NFM to broaden 2.0bp on the back of an overnight policy rate hike some time next year and financing growth of 6.0 per cent given economic recovery."
Given Bank Islam's robust customer profile mix, Chong said the management believed the three-month interest waiver scheme under the Financial Management and Resilience Programme (URUS) would not see strong sign-ups and materially impact Bank Islam.
"Separately, the 53 per cent FY21 cost-to-income ratio guidance was maintained, despite booking 51 per cent in 1H of 2021.
"This is due to the gradual ramp-up in digital spending and higher employee cost."