Investment Highlights

• Industry loan growth moderated to 4.4% YoY in June 2023 (May 2023: 4.8% YoY) due to slower growth in non-household loans. This was within our expectation of a 4%-5% loan growth for the banking sector. June 2023 saw a slowdown in working capital loans. Meanwhile, household loan growth slipped slightly to 5.3% YoY in June 2022 vs. 5.4% YoY in May 2023. In June 2023, expansion of credit for purchase of securities, passenger vehicles and outstanding in credit cards slowed down. Meanwhile, growth in loans for purchase of residential properties and personal financing continued to hold up. Working capital loans grew at a slower pace to 1.7% YoY (May 2023: 3.7% YoY).

• Loan applications and approvals declined in June 2023. June 2023 saw contractions in household loan applications. On loans approvals, both approved household and non-household financing were lower in June 2023 compared to the preceding month.

• Growth in deposits decelerated with CASA momentum continuing to be slow. Deposit growth eased to 5.9% in June 2023 vs. 6.7% YoY in May 2023. LD ratio for the sector remained stable at 85.5%. The sector’s loan-to-fund ratio and loan-tofund/equity ratios declined marginally to 81.6%/70.9%. Sector LCR increased slightly to 155% from 151% in the preceding month, contributed by higher LCRs of commercial, Islamic and investment banks. CASA growth continued to be slow and contracted by 4.2% YoY in June 2023. The banking system’s CASA ratio rose slightly to 29.3% in June 2023 vs 28.9% in May 2023.

• Lower loan impairments and provisions in June 2023. The industry’s outstanding impaired loans decreased by 2.2% MoM or RM797mil in June 2023. This was driven largely by a decline in impairments of loans to the agriculture, mining, quarrying, manufacturing, construction and household sectors. The industry’s GIL ratio remained stable at 1.8% in June 2023. Meanwhile, NIL ratio was sustained at 1.1%. The sector’s loan loss cover (LLC) slipped to 91.8% in June 2023 (May 2023: 93.2%), attributed to the decline in provisions. Including regulatory reserves, LLC was 116.2%.

• Year-to-date, net issuance of bonds and sukuks climbed significantly. Activities in the equity capital market were slower in June 2023 after a pick up in pace in May 2023 from IPOs. Year-to-date, net funds raised by the private sector totalled RM13.6bil (+160.4% YoY) driven largely by higher issuance of bonds and sukuks.

• The sector's CET1/Tier 1/Total capital ratios remained healthy at 14.4%/15%/18.2%.

• Retain OVERWEIGHT stance on the sector with top BUYs on RHB Bank (fair value RM6.80/share) and CIMB Group (fair value: RM6.70/share).

Source: AmInvest Research - 3 Aug 2023