Investment Highlights

• Industry loan growth slid to 5.8% YoY in May 2024 from 6% YoY in Apr 2024, contributed by a slower pace in growth of non-household loans. Growth in working capital loans slowed down to 3.5% YoY in May 2024 from 4.7% YoY in Apr 2024. YTD loans grew by 4.1% annualised, in line with our loan growth expectation of 4%-5% for 2024. Household loan growth increased marginally to 6.5% YoY, supported by a modest improvement in growth of mortgage and loans for purchase of passenger vehicles. Growth in non-household loans in May 2024 fell to 4.8% YoY vs. 5.6% YoY in Apr 2024.

• Growth in loan applications and approvals slowed down in May 2024. Growth of both household and non-household loan applications and approvals were lower in May 2024 than the preceding month.

• Deposit growth eased marginally. Nevertheless, CASA ratio was sustained at 29.6%. Deposit growth eased slightly to 4.9% YoY in May 2024 from 5% in Apr 2024. LD ratio for the sector continued to be stable at 86.1%. The sector’s loan-to-fund ratio/loan-to-fund and equity ratio was steady at 82.2%/71.5% in May 2024. Sector LCR slipped to 150% in May 2024 from 152% in Apr 2024, attributed to lower LCRs of commercial, islamic and investment banks. CASA growth improved modestly to 7.4% YoY in May 2024 vs 6.7% YoY in Apr 2024. The banking system’s CASA ratio was stable at 29.6%.

• Continued uptick in loan impairments but provisions trended lower in May 2024. The industry’s outstanding impaired loans increased marginally by 0.1% MoM or RM24mil in May 2024. The increase was driven largely by higher impairments of loans to mining, quarrying, manufacturing, utilities, wholesale & retail trade, construction, hotel, finance, insurance and business activities sectors. The industry’s GIL/NIL ratio has held up at 1.6%/1% in May 2024. Total provisions for the sector decreased by 1% MoM or RM336mil in May 2024. The sector’s loan loss cover (LLC) slipped further to 90.8% in May 2024 (Apr 2024: 91.8%), attributed to the decline in provisions.

• The sector's CET 1/Tier 1/Total capital ratios were slightly lower at 14.4%/14.9%/18% in May 2024. This has been contributed by an increase in total risk-weighted assets.

• Maintain NEUTRAL on the sector with BUYs on CIMB (FV: RM7.10/share), Hong Leong Bank (FV: RM24.10/share), Public Bank (FV: RM4.50/share) and Alliance Bank (FV: RM4.30/share). Our FY24F/25F core earnings of RHB Bank have been adjusted lower by 0.4% to RM2.84bil/RM3.15bil to reflect lower NIM assumptions. With that, we have downgraded our call on RHB Bank to HOLD from BUY with a revised FV of RM6.00/share (previously: RM6.10/share), pegging the stock to a FY24F P/BV of 0.8x. We switched RHB with Public Bank, a laggard stock of which valuation has turned compelling at 1.4x FY24F P/BV after continued weakness in the share price. At current valuation, we see opportunity to buy on weakness in Public Bank on consideration of its resilient asset quality, high loan loss coverage including regulatory reserves of 200% and a liquid stock with a high free float of 62.1%.

Source: AmInvest Research - 1 Jul 2024