Banking system’s 5.7% loan growth in January a good start, but analysts mixed on outlook

KUALA LUMPUR (March 4): January’s 5.7% loan growth in the banking system has beat expectations but analysts have held mixed reactions on the outlook for the sector.

While loan demand remained healthy and asset quality remained resilient in January 2024, some analysts have cautioned against the potential for material deterioration.

“We are projecting a slower loan growth of 4% to 5% for banks in 2024 (versus 5.3% in 2023), as we do not expect the strong momentum in the growth of 10.2% year-on-year in auto loans at end-January 2024 to be sustainable,” said CIMB-CGS in a research note on Monday.

The research house expects car sales to weaken, potentially resulting in auto loans slowing down to 3% to 5% in 2024.

Nevertheless, it expects loan growth for the banking industry to bode well at least for the next one- to two months, given the strong loan demand in the banking system.

“We are encouraged to see that applications and approvals of all three major loan segments, such as residential mortgages, auto loans, and working capital loans, expanded at rates of more than 30% year-on-year in January 2024,” said CIMB-CGS, which also expects the gross impaired loan ratio to be stable in 2024.

As such, the research house reaffirmed its overweight call on banks, supported by a strong forecasted dividend yield of 5% in 2024, with its top picks being Hong Leong Bank Bhd and Public Bank Bhd.

However, Hong Leong Investment Bank (HLIB) opined that it is too premature to turn full-on bearish on the banking sector.

“The risk-reward now is more balanced, as there are no new positive catalysts to spur share prices significantly higher,” said HLIB, which maintained a neutral call on the sector.

“This is no thanks to NIM (net interest margin) being unable to recover meaningfully, NOII (non-interest income) growth to slow, and no NCC (non-credit cost) write-backs,” it stated in a note.

HLIB also projected the sector’s profit to grow at a slower rate of 6% in 2024 and 4% in 2025, down from 15% in 2023.

It endorsed Public Bank for its defensive qualities and multi-year low foreign shareholding, while favouring Alliance Bank for its inexpensive valuations.

Meanwhile, RHB Investment Bank also maintained a neutral rating due to the mixed picture for the banking sector.

It said in a note that while there was healthy loan growth and improving asset quality, as well as a growth in the current account savings account (Casa) ratio, lending indicators showed sequentially lower demand from the business segment in January.

The research house named CIMB Bank Bhd, AMMB Holdings Bhd, Hong Leong Bank Bhd and Alliance Bank Malaysia Bhd as its top picks.

At Monday’s noon break, shares of Public Bank rose three sen or 0.69% to RM4.39, valuing the group at RM85.21 billion. CIMB Bank Bhd rose 12 sen or 1.89% to RM6.46, valuing the group at RM68.9 billion.

Shares of RHB Bank rose two sen or 0.36% to RM5.63, with a market value of RM24.13 billion, while Alliance Bank’s share price went up two sen or 0.6% to RM3.61, with a market value of RM5.59 billion.

AMMB Holdings Bhd’s share price remained unchanged at RM4.28, valuing the group at RM14.18 billion, while shares of Hong Leong Bank remained unchanged at RM19.60, valuing the group at RM42.49 billion.