Investment Highlights

• Industry loan growth rose to 4.8% YoY in May 2023 (Apr 2023: 4.5% YoY), attributable to an improvement in nonhousehold loans. Working capital loan growth was stronger in May 2023. Meanwhile, household loan growth was stable at 5.4% YoY. May 2023 saw faster growth in personal loans and loans for purchase of passenger vehicles. Growth in loans for purchase of residential properties continued to hold up. In contrast, growth in loans for purchase of securities was slower in May 2023 compared to Apr 2023. Working capital loans grew at a faster pace to 3.7% YoY (Apr 2023: 3.2% YoY).

• Loan applications and approvals picked up pace in May 2023. May 2023 saw higher growth rates for both household and non-household loan applications and approvals.

• Growth in low-cost deposits continued to be slow. CASA ratio was sustained at 29.8%. Deposit growth increased slightly to 6.7% in May 2023 vs. 6.4% YoY in Apr 2023. LD ratio for the sector remained stable at 85.4% in May 2023. The sector’s loanto-fund and loan-to-fund/equity ratio declined marginally to 81.8%/71%. Sector LCR slipped to 152% from 154% in the preceding month. This was contributed by lower LCRs of Commercial, Islamic and Investment banks. CASA growth continued to be slow and contracted by 4.9% YoY in May 2023. The banking system’s CASA ratio remained steady at 28.9%. The weighted average lending rate and base rate rose due to the 25bps OPR hike to 3% in May 2023.

• The industry’s outstanding impaired loans increased by 1.5% MoM or RM535mil in May 2023. This was driven largely by an uptick in impairments of loans to most sectors except the mining, quarrying, finance, insurance, and business activities sectors. The industry’s GIL ratio remained stable at 1.8% in May 2023. Meanwhile, the NIL ratio was sustained at 1%.

• Total provisions for the sector rose slightly by 0.4% MoM or RM131mil in May 2023. The sector’s loan loss cover (LLC) slipped to 93.2% in May 2023 (Apr 2023: 94.2%) attributable to the increase in impaired loans. Including regulatory reserves, LLC was 114.1%.

• Lower net issuance of bonds and sukuks in May 2023 due to redemptions. Meanwhile, activities in the equity capital market picked up pace in May 2023, attributable to IPOs. Year-to-date, the net funds raised by the private sector totalled RM6.8bil (+83.8% YoY).

• The Sector's CET1/Tier 1/Total Capital Ratios Remained Healthy at 14.6%/15.1%/18.3%.

• 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 - 3 Jul 2023