Invesment Highlights

• Industry loan growth rose to 5.3% YoY in Dec 2023 from 4.9% YoY in Nov 2023, supported by stronger growth in working capital loans. This was in line with our loan growth expectation of 4-5% for 2023. Growth in household loans continued to be stable at 5.8% YoY. Meanwhile, growth in non-household loans climbed to 4.5% YoY in Dec 2023 vs. 3.5% YoY in Nov 2023 driven by stronger pace of financing to mining, quarrying, wholesale, restaurants, hotels, transport, storage, communication, financing, insurance, business services, education, health and other sectors. For 2024, we expect the industry loans to grow by 4-5%.
   
• Stronger growth in loan applications and approvals in Dec 2023. Dec 2023 saw higher level of applications for household loans while the level of non-household loans was slightly lower compared to Nov 2023.
   
• CASA growth continued to pick up pace. Deposits grew 5.6% YoY in Dec 2023 compared to 5.3% YoY in Nov 2023. LD ratio for the sector was sustained at 85.8%. The sector’s loan-to-fund ratio/loan-to-fund and equity ratio fell marginally to 81.8%/71.6%. Sector LCR rose to 161% in Dec 2023 from 150% in Nov 2023 as banks managed their buffers based on expectations of year-end fluctuations in deposit levels. LCRs of commercial, Islamic and investment banks were higher in Dec 2023. CASA growth continued to pick up pace for the 3rd consecutive month to register a modest growth of 3.7% YoY in Dec 2023. As a result, the banking system’s CASA ratio increased marginally to 29.5% in Dec 2023 vs. 29.4% in Nov 2023.
   
• Lower impaired loans and provisions in Dec 2023. The industry’s GIL declined to 1.6% in Dec 2023 vs. 1.7% in Nov 2023 while NIL ratio remained stable at 1.1%. Total provisions for the sector decreased by 2% MoM or RM674mil in Dec 2023. The sector’s loan loss cover (LLC) slid marginally to 92% in Dec 2023 (Nov 2023: 92.9%), attributed to decline in provisions. Including regulatory reserves, LLC was 119.2%.
   
• ​​​​​​​The sector's CET1/Tier 1/Total capital ratios remained steady at 14.6%/15.2%/18.2%.
   
• ​​​​​​​Our NEUTRAL stance is maintained, premised on macro headwinds, ongoing geopolitical tensions, pressure on funding cost in the near term and uncertainties in yield curve which is likely to impact treasury and investment income in 2024. 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 - 2 Feb 2024