• Top Picks: CIMB, Hong Leong Bank, AMMB, and ABMB. Bank Negara Malaysia’s (BNM) banking system statistics for October pointed to a stable 4% YoY system loan growth (Sep 2023: +4.3% YoY). Deposit growth outpaced loan growth YoY, driven by fixed deposits (FD), but CASA ticked up MoM following a decline in FD levels. Encouragingly, lending indicators across both the business and household segments remained stable. Asset quality, too, was healthy as system GILs declined both sequentially and YoY. We maintain our NEUTRAL rating on the sector.

• System loans grew 4% YoY (+0.3% MoM). This was mostly underpinned by household loans which grew 5.8% YoY, while business loans were up by 1.5% YoY. The increase in loans was mostly for residential mortgages (+7% YoY, +1% MoM), vehicles (+9% YoY, +1% MoM), and personal use (+5% YoY, flat MoM), whereas loans for the purchase of securities showed the biggest decline (-13% YoY, -2% MoM). YTD, system loans have increased by 3.4% (annualised: 4%). We maintain our 2023 system loans growth forecast at 4-4.5%.

• Solid lending indicators. On a 3-month moving average (3MMA) basis, system loan applications saw a sharp 15% increase YoY (+4% MoM) as business loans increased by 23% YoY (+8% MoM). Loan approvals rose by 4% YoY (+5% MoM), and loan disbursements were up by 7% YoY (+2% MoM). Loan approvals for the business segment declined by 1% YoY but picked up by 8% MoM.

• System deposits grew 4.3% YoY (+0.4% MoM). While the YoY growth was driven by FD (+6%), it recorded a -0.5% decline MoM. CASA was flat YoY but saw a slight 0.9% increase MoM, which resulted in a marginally higher CASA ratio of 30.8% in October (September: 30.7%, Oct 22: 31.7%).

• Healthy asset quality. System GILs continued to decline last month (-2.7% YoY, - 0.5% MoM). The decrease in GILs across most sectors – most noticeably transport & communication (-62% YoY, -9% MoM) and construction (-3% YoY, +1% MoM) – were able to offset the increase in GILs from wholesale & retail (+30% YoY, +1% MoM) and households (+8% YoY, +1% MoM). Consequently, the system GIL ratio dropped to 1.7% in October (September: 1.72%, Oct 2022: 1.82%), the lowest level since Feb 2022 (1.69%). System LLC increased to 91.3% from 91.2% in September (Oct 2022: 96.7%).

• Other highlights. The banking system’s capital buffers remain ample – CET-1 is at 14.4%, system LDR at 86%, and liquidity coverage ratio remains at 151% in October. For the SME segment, loans grew 7% YoY in September (+1% MoM), mostly led by the wholesale & retail (+9% YoY, +2% MoM) and finance sectors (+5% YoY, +1% MoM). The SME GIL ratio declined sequentially, but still remained high at 3.14% (August: 3.17%, Sep 2022: 2.91%). 

Source: RHB Securities Research - 01 Dec 2023