Loan/financing applications. Loan/financing applications are a shade off the pace set in 2023 (RM120.6bn), currently averaging RM112.5bn YTD April 2024. Weaker activity is observed in residential loan and working capital applications, somewhat worrying considering both are anchors of industry growth, though unsurprising given rising unaffordability issues (against the backdrop of elevated living costs) for the former, and challenging operation conditions for the latter. Implied approval rates saw a jump toward end-2023, likely the result of targets needing to be met, though having normalized to a still-encouraging ~50%. This continues to suggest banks’ confidence in borrowers’ credit strength and the country’s economic outlook.

Loan/financing growth. Credit growth momentum may lag 2023’s +5.3% expansion unless there is a late surge, with YTD April 2024 growth only coming in at +1.4% amid weakness in business-related loans (also suggested in the application trends). That said, we continue to anticipate a broad-based loans growth of +5.0% in 2024 on account of steadier domestic economic activity and private consumptions. We remain wary over possible margin compressions owing to competitive pressures however.

Industry asset quality continues to exhibit resilience, sporadic instances of elevated provisions (isolated to specific banks and/or situations) notwithstanding.

Cumulative provision overlays undertaken during the pandemic years (2020 to 2022) appear to still remain sufficient to help mitigate any significantly untoward developments, with most of larger financial institutions not unwinding respective positions as yet, with some even adding to prevailing balances.

Selective exposure. Steadier economic conditions in 2024 is expected to sustain credit expansion (at ~5% YoY) while also providing further relief on asset quality. While the US remains under pressure (by the market) to cut rates by this year-end, we do not see any move domestically though we remain wary on margin compressions owing to competitive pressures.

True to form and as we had expected (and guided for end-2023), the Bursa Malaysia Finance Index has performed admirably with a +9.1% YTD gain at its peak. Index heavyweights like Maybank and CIMB Group, amongst others, have (at their YTD peaks) gained +13.1% and +20.3% respectively. While we still see sector performance (and earnings prospects) remaining steady in 2024 going into 2025, risk rewards appear skewed to the downside and suggest investors adopt a trading-oriented stance and buy on weakness.

Source: PublicInvest Research - 26 Jun 2024