Investment Highlights

• Modest increase in industry loan growth to 4.3% YoY in Sept 2023 from 4.2% YoY in Aug 2023 supported by higher growth in household and non-household loans. Working capital loans picked up pace to register a higher growth rate of 1.1% YoY in Sept 2023 (Aug 2023: 0.4% YoY). Household loan growth was marginally higher at 5.6% YoY in Sept 2023 vs. 5.5% YoY in Aug 2023 underpinned by a stronger growth in loans for purchase of residential property, personal use and outstanding credit cards. Year-to-date (YTD), loans grew by 4.1% in line with our expectation expansion of 4-5% for 2023. We maintain our loan growth forecast of 4% for 2024.

• Improvement in trend of loan applications and approvals in Sept 2023. In Sept 2023, the overall loan applications improved to 11.4% YoY vs. 8% YoY in Aug 2023. This was contributed by a higher growth in non-household loan applications. In contrast, growth in household loan applications was slightly lower in Sept 2023 than the preceding month. Sept 2023 saw stronger loan approvals of non-household loans.

• Deposit growth moderated with momentum for CASA continuing to be slow. Deposit growth eased further to 4.3% YoY in Sept 2023 vs. 4.6% YoY in Aug 2023. LD ratio for the sector declined slightly to 85.7% in Sept 2023. The sector’s loan-to-fund ratio/loan-to-fund and equity ratio remained steady at 82.5%/71.9%. Sector LCR climbed to 152% from 150% in the preceding month due to higher LCRs of islamic and investment banks which partially offset a slightly lower ratio of commercial banks. CASA growth continued to be slow at -0.7% YoY in Sept 2023. The banking system’s CASA ratio eased marginally to 29.2% in Sept 2023 vs 29.3% in Aug 2023.

• Lower loan impairments and provisions in Sept 2023. The industry’s GIL ratio inched lower to 1.7% in Sept 2023. Meanwhile, the NIL ratio was marginally lower at 1.07%. The sector’s loan loss cover (LLC) improved slightly to 91.2% in Sept 2023 (Aug 2023: 90.6%) due to lower loan impairments. Including regulatory reserves, the industry’s LLC stood at 117.5%.

• Higher net issuance of bonds and sukuks in Sept 2023 owing to lower redemptions.

• The 10-year MGS yield rose 13bps MoM to 3.97% as at end Sept 2023 as US Fed Reserve officials reiterated FOMC’s stand of higher for longer interest rates.

• The sector's CET1/Tier 1/Total capital ratios remained steady at 14.5%/15.0%/18.1%.

• Keeping our BUY calls on CIMB (FV: RM6.60/share), RHB (FV: RM6.50/share) and Hong Leong Bank (FV: RM22.60/share).

Source: AmInvest Research - 1 Nov 2023