Investment Highlights

• Industry loan growth moderated to 4.5% YoY in Apr 2023 (Mar 2023: 5% YoY) attributable to a slowdown in household and non-household loans. Household loan growth eased to 5.2% YoY in Apr 2023 from 5.4% YoY in Mar 2023. Apr 2023 saw a faster growth in outstanding credit cards and personal loans. Growth in loans for purchase of passenger vehicles was sustained. Meanwhile, growth in loans for purchase of residential properties and securities slowed down. Non-household loans expanded at a slower pace of 3.5% YoY in Apr 2023 vs. 4.3% YoY in the preceding month. Momentum for working capital loans was slower in Apr 2023 with a growth rate of 3.2% YoY (Mar 2023: 4.9% YoY).

• Slower pace of loan applications and approvals in Apr 2023. Apr 2023 saw both household and non-household loan applications and approvals slowing down.

• Growth in low-cost deposits continued to moderate, leading to lower CASA ratio of 29%. Deposit growth decelerated to 6.4% in Apr 2023 vs. 7% YoY in Mar 2023. The LD ratio for the sector remained stable at 85.3%. Correspondingly, the sector’s loan-to-fund ratio was sustained at 82.1% while loan-to-fund and equity ratio was upheld at 71.2%. CASA growth continued to be on a declining trend and contracted by 6.4% YoY in Apr 2023. The banking system’s CASA ratio slipped to 29% in Apr 2023 vs. 29.2% in the preceding month. With the increase in interest rate, growth in FDs continued to pick up pace.

• The sector’s LCR declined to 154% from 157% in the preceding month. This was contributed by the higher LCRs of commercial and Islamic banks.

• The industry’s outstanding impaired loans increased modestly by 2% MoM or RM716mil in Apr 2023. This was driven largely by an uptick in impairments of loans to the agriculture, mining, wholesale & retail trade, restaurants, hotels, finance, insurance, business activities and the construction sectors. The industry’s GIL ratio inched higher to 1.8% from 1.7% in the preceding month. This was in line with our expectation of upticks in the banking system’s GIL ratio after the expiry of loans under broad repayment assistance programmes. Meanwhile, NIL ratio remained steady at 1.1%.

• Total provisions for the sector rose slightly by 0.3% MoM or RM111mil in Apr 2023. The sector’s loan loss cover (LLC) slipped to 94.2% in Apr 2023 (Mar 2023: 95.8%) following the increase in impaired loans.

• The sector's CET1/Tier 1/Total capital ratios remained healthy at 14.8%/15.4%/18.5%. Excess capital buffer in the banking system was stable at RM136bil.

• Retain our OVERWEIGHT stance on the sector with top BUYs on RHB Bank (fair value RM6.80/share) and CIMB Group (fair value: RM6.40/share).

Source: AmInvest Research - 6 Jun 2023