• Keep OVERWEIGHT, with Malayan Banking, CIMB and AMMB as Top Picks. Bank Negara Malaysia’s (BNM) banking sector statistics for February indicated continued robustness in the system – loans growth accelerated to 5.2% YoY (January: 4.9%) with a rebound in financing demand recorded. Despite the current uncertain market environment, we believe the banks have sufficient levers in place to support earnings and dividend growth, hence, we reiterate our optimism on the sector.

• System loans added 5.2% YoY (MoM: +0.4%) in February, with auto loans (+8% YoY, flat MoM) and residential mortgages (7% YoY, flat MoM) contributing the most to YoY growth. Loans growth to both households (+6% YoY, flat MoM) and non-households (+4% YoY, +1% MoM) stayed robust generally, although there was a YoY drop in mining & quarrying loans (-23% YoY, +2% MoM). Overall, with BNM expecting economic activity to remain firm throughout the year, we reiterate our 2023 system loans growth forecast of c.5% YoY.

• Higher loan applications. System loan applications in February stood at MYR110bn (+29% MoM, +34 YoY) – thanks to the higher applications from households (+30% YoY, +24% MoM) and non-households (+40% YoY, +38% MoM). This is despite the uptick in the average lending rate to 5.13% at end-February vs 5.05% at end-January (end-Feb 2022: 3.48%). Other lending indicators remained solid too, with approvals and disbursements up 49% and 19% YoY (MoM: +27% and -8%).

• Encouraging deposits growth. System deposits continued its strong momentum, adding 7.5% YoY (MoM: +1.7%) in February. MoM growth was balanced between CASA and fixed deposits, though YoY, CASA deposits were flattish while fixed deposits grew 7%. The CASA ratio remained at 40.5%, down from 42% in the previous year. Moving forward, banks have guided for CASA attrition to continue with the normalisation of interest rates.

• Slight uptick in GILs. System GILs recorded a 2% MoM rise (YoY: +10%) mainly due to residential mortgages (+4% MoM, +17% YoY) and personal loans (+7% MoM, +15% YoY). The household GIL ratio increased slightly to 1.28% at end-February from 1.23% the month before (Feb 2022: 1.16%) whereas business GIL ratio was flat MoM and YoY at 2.46%. We are not overly concerned by the rise in household GILs, as BNM insights suggest households’ debt-servicing capability remains healthy. System LLC of 95.8% at end-February (January: 97.4%, Feb 2022: 108.0%) is also sufficient for now, in our view.

• Other highlights. The banking system stayed liquid and well capitalised, with a LDR of 84.5% and CET-1 ratio of 14.8% – implying ample room for growth within the banking system. SME loans charted a 4.2% growth YoY in January (flat MoM), with most of the growth delivered by the wholesale & retail (+10% YoY, flat MoM) and finance (+5% YoY, flat MoM) sectors. SME GIL ratio of 3.0% (Jan 2022: 2.5%, Dec 2022: 2.9%) was a tad higher than overall business GIL ratio.

Source: RHB Research - 3 Apr 2023