Asian Banks: Re-Leveraging Asia, Big Deposit Franchises Shine

- Loan Growth Recovery – "Loan growth for most Asian countries has recovered strongly, with four markets on ~20% growth (IN, ID, CN, HK) and three markets on ~10% growth (MY, SG, TH). Loan growth has mostly outpaced deposit growth; negative real deposit rates have encouraged outflows from bank deposits."
- Tightening Liquidity – "LDRs have risen but are generally still low. But this masks potential liquidity pressures building up, as liquidity/reserve requirements are high in some countries (eg. IN, CN, ID). Excluding these reserves, the loans/lendable deposits ratio rises to 106% for IN, 92% in TH and 87% in ID. Continuation of rapid loan growth could see funding pressures first in IN, followed by TH and ID."
- Rising Household Debt – "Consumer loans have mostly outpaced the growth in overall lending across Asia. Low nominal rates and negative real rates are likely to drive asset prices further, leading to higher levels of household debt. MY and KR have the highest levels of household debt in the region; if adjusted for GDP/capita, MY’s level of household debt would be the highest in the region."
- Rate Normalization Continues – "We see the most rate hikes in the next 12-18mths in IN, ID, TH and KR; least hikes in HK, SG, CN, MY and TW. Banks/sectors with high levels of CASA deposits and low fixed rate lending benefit most. HK, CN, TW, TH and selective ID banks are structurally best positioned; MY and KR banks seem least sensitive to rate hikes."
- Big Deposit Franchises With Liquid Balance Sheets – "Key beneficiaries of strong credit growth and a rising rate environment are mostly low-LDR banks with big deposit franchises. We highlight: BCA, Mandiri in Indonesia; KTB, BBL, KBANK in Thailand; SBI, PNB, HDFCB, AXIS, ICICI in India. Big HK banks BOCHK, HSB are the most liquid regionally but HK has the least potential for rate hikes."
- Valuations Not Cheap Post Re-Rating – "Most Asian banks re-rated sharply in past 3 mths as prices in most markets (except CN, KR, SG) have climbed ~20% vs positive consensus EPS revisions only in MY and ID. Most Asian banking sectors are now over 13x forward PE; cheapest are KR and CN on less than 10x."
- Overweight CN, TH – "CN banks’ valuation gap vs the region has widened further; most concerns seem priced-in. TH banks still at a discount to ASEAN peers but with better growth, although there is potential policy risk to curb liquidity inflows. Overweight CN, TH. Neutral IN, KR, MY, HK. Underweight ID, TW, SG. Top buys: CCB, ABC, SCB, KTB, Stan. Top sells: BDMN, UOB, OCBC, Cathay, Fubon."
- Multi-strategy — "We recommend 1) Long investors to buy a customised basket of selected regional top picks, 2) Derivatives investors to buy single-stock calls."


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