Industry loan growth rose slightly to 6% YoY in Oct 2024 (Sept 2024: 5.6% YoY) contributed by a higher growth in non-household loans. This is in line with our expectation of 5-6% growth for the sector in 2024. Leading indicator remained weak with a subdued growth in loan applications YoY while growth in loan approvals contracted by 3.2% YoY. Asset quality for banks remained stable with a sustained GIL ratio of 1.5%. Provisions for loan impairments trended lower MoM. Maintain NEUTRAL on the sector with limited ROE expansion on moderating earnings growth to 6.4% in 2025. Advocate selective approach with CIMB (TP: RM9.50/share) and Hong Leong Bank (TP: RM26.90/share) as top picks. Maintain UNDERWEIGHT on Maybank (TP: RM8.85/share) on stretched valuation with limited ROE uplift.

• Higher growth in non-household loans while household loans grew at a slightly slower pace. Growth in non-household loans climbed to 5.7% YoY (Sept 2024: 4.6% YoY) supported by expansion in working capital loans. Meanwhile, household loan growth eased marginally to 6.2% YoY (Sept 2024: 6.3% YoY) with a slowdown in loans for purchase of residential property, passenger cars, credit cards and a continued contraction in loans for purchase of securities. YTD, industry loans grew by an annualised rate of 5.0%. LD ratio remained stable at 88%.
• Growth in deposits moderated to 3.1% YoY with CASA growing at a moderated pace of 4.0% YoY in Oct 2024. Weighted average lending rate for loans fell 2bps MoM to 5.07% and we expect NIM of banks to be pressured by higher funding cost in 4Q 2024 due to the seasonal year-end deposit competition. System CASA ratio slipped slightly to 29.6% (Sept 2024: 29.7%).
• Higher interest spread by 1bps MoM in Oct 24. This was due to a lower average lending rate by 3bps MoM while the 3-month FD rate declined 4bps MoM.
• Impaired loans fell by 0.6% MoM while provisions recorded a marginal decline of 0.2% MoM. Asset quality continues to hold up with the industry GIL/NIL ratio at 1.5%/0.9%. The sector's loan loss cover (LLC) increased marginally to 91.2% (Sept 2024: 90.8%) attributed to the decrease in impaired loans. Including regulatory reserves, loan loss cover was 126.6%.

Source: AmInvest Research - 3 Dec 2024