• Top Picks: CIMB, Hong Leong Bank, and AMMB. September’s Bank Negara Malaysia’s (BNM) banking system statistics showed that YoY loans growth was maintained at 4.3%, with equally stable lending indicators – particularly from the business segment. System deposits continued to outpace CASA growth, and system GILs declined by 1.5% YoY. We maintain our NEUTRAL weighting on the sector amid a backdrop of normalising earnings growth heading into 2024.

• System loans grew 4.3% YoY (+0.8% MoM) in September (QoQ: +1.6%), with household loans up by 5.6% YoY (+0.6% MoM) and nonhouseholds loans up by 2.6% YoY (+0.9% MoM). This was supported by steady growth across most loan purposes, with the exception of construction (-0.7% YoY, +0.6% MoM) and purchase of securities (-11% YoY, -1% MoM). The sectors that recorded stronger loan growth include transport & communications (+7.5% YoY, -0.6% MoM) and finance (+6.3% YoY, +1.7% MoM). YTD, system loans have increased by 3% (annualised: +4.1%). We maintain our 2023 system loans growth forecast at 4-4.5% YoY.

• Strong lending indicators. On a 3-month moving average (3MMA) basis, growth in loan applications stood at 4.1% YoY (+5% MoM) and loan disbursements increased by 7.2% YoY (+2.3% MoM). However, loan approvals dipped by 1.6% YoY (+5.4% MoM). The MoM growth in applications and approvals was driven by the business segment (applications: +12.4% MoM, approvals: +11.5% MoM) while the household segment recorded a 0.9% MoM decrease for both measures.

• System deposits grew 4.3% YoY (+1.2% MoM) (QoQ: +1.4%). This continues to be driven by fixed deposits (FD) (+6.8% YoY, +0.7% MoM), while CASA saw a slight decline YoY (-0.7% YoY, +0.7% MoM). On a MoM basis, both FD and CASA grew at the same pace, hence the CASA ratio remained steady at 30.7% in September (Aug 2023: 30.8%, Sep 2022: 31.7%). The 12-month FD rate continued to decline to 2.85% after reaching a peak of 2.9% in May (Aug: 2.86%).

• Healthy asset quality. System GILs dropped in September (-1.5% YoY, -2.6% MoM) with almost all sectors recording YoY declines barring wholesale & retail (+29.9% YoY), mining & quarrying (+3.7% YoY), and households (+8.2% YoY). Consequently, the system GIL ratio dropped to 1.72% (Aug 2023: 1.78%, Sep 2022: 1.82%), the lowest level since Dec 2022 (1.72%). System LLC increased to 91.2% from 90.6% in August (Sep 2022: 97.3%).

• Other highlights. The banking system’s capital buffers remain sufficient – CET-1 remains at 14.5%, system LDR at 85.7%, and liquidity coverage ratio is high at 150%. For the SME segment, loans grew 6.1% YoY in August but was flat MoM. Loans for wholesale & retail (+7.9% YoY, +0.6% MoM) and transport & communication (+16.7% YoY, +1.2% MoM) segments led the overall loan growth. The SME GIL ratio continued to increase up to 3.17% from 3.09% in July (Aug 2022: 2.90%).

Source: RHB Securities Research - 1 Nov 2023