• Maintain NEUTRAL. Top Picks: CIMB, Hong Leong Bank, and AMMB. Bank Negara Malaysia’s (BNM) banking system statistics for August showed YoY loans growth maintained at 4.2%, but lending indicators are softer with lower loan applications and approvals, partly due to a higher base last year. System CASA ratio ticked up MoM as the 12-month fixed deposit (FD) rate declined from its peak in May. We maintain our call on the sector amid a backdrop of normalising earnings growth heading into 2024.

• System loans grew 4.2% YoY (+0.7% MoM) in August, as lending to households (+6% YoY, +1% MoM) and non-households (+2% YoY, +1% MoM) were sustained. This was supported by higher growth across most loan purposes such as transport vehicles (+9% YoY, +1% MoM), residential property (+9% YoY, +1% MoM), and personal use (+4% YoY, +1% MoM). The sectors that recorded lower loans include utilities (-9% YoY, -1% MoM) and manufacturing (-1% YoY, +1% MoM). On a YTD basis, system loans grew 2.3% (annualised: +3.4%). We maintain our 2023 system loans growth forecast at 4-4.5%.

• Stable lending indicators. On a 3-month moving average (3MMA) basis, lending indicators reported a slight decline YoY partly due to a higher base last year. System loan applications dropped 2% YoY (+3% MoM), and loan approvals fell 8% YoY (+1% MoM), mostly from lower approvals for the business segment (-14% YoY, +2% MoM) whereas loan approvals for households were flattish. Loan disbursements recorded YoY and MoM increases of 5% and 2%.

• System deposits grew 4.6% YoY (+0.6% MoM), which outpaced loans growth during the same period. This continued to be driven by FD which grew 7% YoY, although it recorded a first MoM decline (-0.6%) since January. This is as the 12-month FD rate declined further to 2.86% after hitting a peak of 2.90% in May. CASA was 2% lower YoY, but ticked up +2% MoM. This led to a slightly higher CASA ratio of 30.8% (July: 30.4%, Aug 2022: 32.3%).

• Healthy asset quality. System GILs rose slightly (+1% YoY, +2% MoM) as the increase in GILs sectors such as wholesale & retail (+32% YoY, +4% MoM), construction (+3% YoY, +2% MoM), and households (+14% YoY, flat MoM) offset the decrease in GILs in other sectors. Consequently, system GIL ratio ticked up to 1.78% in August (July: 1.76%, Aug 2022: 1.84%) and system LLC fell to 90.6% from 91.5% in July (Aug 2022: 97.3%).

• Other highlights. The banking system remains healthy, with sufficient capital buffers – CET-1 stood at a 14.5%. Liquidity is ample with LDR at 86.1% and liquidity coverage ratio at a high 149%. For the SME segment, loans grew 7% YoY (flat MoM) from increases across all sectors barring mining & quarrying (-2% YoY, -1% MoM). The SME GIL ratio ticked up slightly to 3.09% in July (June: 3.03%, Jul 2022: 2.88%).

Source: RHB Securities Research - 2 Oct 2023