Investment Highlights

• Industry loan growth eased to 4% YoY in Oct 2023 from 4.3% YoY in Sept 2023, contributed by slowdown in non-household loans. Working capital loans grew at a slower pace of 0.3% YoY in Oct 2023 vs. 1.2% YoY in Sept 2023. Household loan growth increased marginally to 5.8% YoY in Oct 2023 vs. 5.6% YoY in Sept 2023, driven by stronger pace of loans for purchase of residential properties, passenger cars and personal use. Year-to-date (YTD), loans grew by 4.1% in line with our expected expansion of 4%-5% for 2023F.

• Growth of loan applications and approvals improved in Oct 2023. In Oct 2023, growth in overall loan applications improved to 25.8% YoY vs. 11.3% YoY in Sept 2023. This was contributed by an improvement in growth of both household and nonhousehold loan applications. Oct 2023 saw higher growth in approvals of both household and non-household loans.

• Steady deposit growth with CASA picking up pace slightly. Deposit growth held up at 4.3% YoY and LD ratio for the sector was steady at 85.7% in Oct 2023. The sector’s loan-to-fund ratio/loan-to-fund and equity ratio eased marginally to 82.2%/71.7%. Sector LCR slipped to 151% in Oct 2023 from 152% in the preceding month due to lower LCRs of commercial, islamic and investment banks. The sector recorded a modest CASA growth of 0.1% YoY, leading to an inch up in banking system’s CASA ratio to 29.3% in Oct 2023 vs. 29.2% in Sept 2023.

• Loan impairments and provisions continued to trend lower. The industry’s GIL/NIL ratio was steady at 1.7%/1.1%. The sector’s loan loss cover (LLC) improved slightly to 91.3% in Oct 2023 (Sept 2023: 91.2%) due to lower loan impairments.

• Higher funds raised by the private sector in Oct 2023 due to increase in net issuance of bonds and sukuks.

• 10-year MGS yield rose 12.4bps MoM to 4.1% in Oct 2023. This follows the trend of increasing US treasury yields led by expectations of a more hawkish Fed rate hike from stronger economic data. Uncertainties remains on the movement ahead on 10-year MGS yields pending clarity on the direction of US interest rates, particularly on the timing of Fed pivot.

• The sector's CET1/Tier 1/Total capital ratios remained steady at 14.4%/14.9%/18.1%.

• Maintain NEUTRAL on the sector premised on macro headwinds, ongoing geopolitical tensions, pressure on funding cost and challenges on treasury income from uncertainties in yield curve. We maintain BUY on CIMB (FV: RM6.90/share), Hong Leong Bank (FV: RM22.60/share) and RHB Bank (FV: RM6.30/share).

Source: AmInvest Research - 5 Dec 2023