Mar 2024 system loans increased by 6.0%, within our 5.5%-6.0% expectation for CY24, continued to be dominated by households although we are seeing business books gradually picking up on better economic prospects. Industry GIL improved further to 1.62%, being at the lower range of historical averages of 1.6%-1.8%. Deposits growth was moderate (+5.0%) as depositors awaited better rates in 2H. We anticipate OPR to remain at 3.00% throughout CY24, with any change likely to have a downside bias. We maintain our OVERWEIGHT call on the sector, with its resilience to be emboldened by better economic prospects fuelled by infrastructure projects and investments. For 2QCY24, we pick: (i) PBBANK (OP; TP: RM5.10) for sustainable performances from its mortgage books, (ii) RHBBANK (OP; TP: RM7.25) for its leading dividend prospects, and (ii) ABMB (OP; TP: RM4.30) as a small cap favourite given its largely comparable fundamentals which beats certain large caps.
Bigger load up. In Mar 2024, system loans grew by 6.0% YoY which is within our projected 5.5%-6.0% target for CY24. Households (+6.3%) led with higher mortgages while we also noted a rise in non-residential property accounts to fuel commercial use. Business loans also picked up (+5.6%) with financial service industries showing the strongest improvement. On a MoM basis, business loans (+0.9%) came in better than households (+0.5%) with working capital needs also rising, with demand likely spurred by Raya festivities. (refer to Tables 1−3 for breakdown of system loans).
Applications swing seasonally. From a higher base in Mar 2023, Mar 2024 applications came off (-13%) from both household (-11%) and business (-15%) YoY. That said, there was an influx of new MoM applications from consumers (+25%) and businesses (+14%) following Feb 2024’s cooling off amidst Chinese New Year celebrations, whereas more loans may be sought to support Hari Raya spending. (refer to Tables 4−5 for breakdown of system loan applications).
GIL narrows further. Industry GIL eased to 1.62% (Feb 2024: 1.64%, Mar 2023: 1.74%) with industry loan loss coverage being progressively utilised at 92.1% (Feb 2024: 92.4%, Mar 2023: 95.9%). The better health of assets could be tied to improved repayment abilities as economic activities return, with excess provisions by the banks likely to be written back overtime. From our channel checks, we note that certain banks have already written back all of its pandemic-related overlays. (refer to Tables 6−7 for breakdown of system impaired loans).
Demand for cash sustained. Mar 2024 system deposits grew 5.0% YoY (+0.82% MoM) which is below our 5.5%-6.0% growth expectations for CY24 for now. We reckon as banks are progressively repricing down their fixed deposit offerings, depositors may hold back in committing to longer term deposits which may see a spike in the latter half of CY24 as the banks are seasonally more competitive then. Meanwhile, CASA ratio at present moment is fairly stable at 28.6% (Feb 2024: 28.7%, Mar 2023: 28.1%).
Maintain OVERWEIGHT on the banking sector. Market tailwinds (i.e. persistent loans growth and GDP, better margin retention) are expected to continue outweighing industry headwinds (i.e. inflationary pressures, weaker MYR), which we believe may lead to fewer tests to the sector’s resiliency. The sector should be of interest with dividend yields still appearing attractive (6%-7%) on most names on top of lower embedded sector volatility as compared to other industries. We had seen meaningful moves in share prices with the inflow of foreign investors looking to accumulate sector heavyweights.
Our sector top picks for 2QCY24 include PBBANK which could see better leverage on its heavy retail mortgage mix in a stable OPR environment. We also see its possible overlay write-backs to be a catalyst for more generous dividend payouts which may mirror more frequent payouts during the year. RHBBANK is also favoured for its dividends which we project to be the leader (7%-8%) amongst its peers. Meanwhile, its associate Boost Bank may soon enter the public domain which could garner greater interest in the near-term. As for small cap banks, ABMB remains our favourite for its solid fundamentals which are comparable to its large cap peers. Additionally, its leading CASA level may provide the group nimbleness to balance its interest margins with market share acquisition strategies.
Source: Kenanga Research - 2 May 2024
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PBBANKCreated by kiasutrader | Aug 23, 2024
Created by kiasutrader | Aug 23, 2024