• Top Picks: CIMB, AMMB, Hong Leong Bank, Alliance Bank Malaysia, and Public Bank. System loan growth remained robust in March, and increased by 6% YoY. Other highlights from our reading of the numbers include a rise in CASA deposits and resilient asset quality. Maintain sector NEUTRAL, as we do not expect a meaningful earnings outperformance from the sector despite the macroeconomic backdrop being more upbeat.

• System loans grew 6% YoY (+1% QoQ, +1% MoM) in March, driven by the household (+6% YoY), finance (+15%), and wholesale & retail trade (+9%) segments. We also saw consumer loans such as residential mortgages (+7%), credit cards (+10%) and hire purchase loans (+10%) maintaining aboveindustry growth rates, while loans for working capital purposes grew at a softer clip of 5% YoY. QoQ, we also saw a pick-up in loans for the purchase of non-residential properties (+2% QoQ, +6% YoY). The banking system is currently growing faster than our forecasted 4.5-5% YoY target for 2024, which we keep for now. We note that YTD loan applications and approvals have been flat YoY and – assuming this trend remains put – coupled with the base effect from loans growth picking up towards end-2023, overall growth could decelerate in the later part of the year.

• Mar 2024 saw healthy loan applications amounting to MYR117bn (+21% MoM, -13% YoY) in view of the festive period in April. On a cumulative basis, system loan applications in 3M24 were up 1% YoY. Loan disbursements, however, were flat YoY, with softer disbursements to businesses. We think business loan disbursements could pick up later in the year with the gradual rollout of big-ticket development projects, and especially if greater macroeconomic clarity emerges.

• System deposits grew 5% YoY (+1% QoQ, +1% MoM), mostly driven by nonretail deposits. CASA grew by a faster 7% YoY (+2% QoQ, flat MoM), which we believe could be partly due to the launch of several digital banks’ maiden CASA offerings. Feedback from the banks indicates that the competition for deposits has eased from the Dec 2023-Feb 2024 period, but this may pick up in 2H24 – especially if the momentum of loan growth remains as solid.

• Asset quality still sturdy. System GILs eased 1% QoQ (+1% YoY, -1% MoM), mostly thanks to a drop in working capital GILs. Sector-wise, the GIL decrease was roughly broad-based, but the household sector did record a slight GIL uptick of 2% QoQ (+8% YoY, -1% MoM). All in, the system GIL ratio eased 3bps QoQ to 1.62% (Mar 2023: 1.71%), and banks remain well-covered with a healthy system LLC of 92% (Dec 2023: 92%, Mar 2023: 98%).

• Other highlights. Capital ratios appear adequate – the CET-1 and total capital ratios have been largely stable since Jan 2023 at 14-15% and 18-19%. The banking system also remains decently liquid, with an 86% loans-todeposits ratio and 150% liquidity coverage ratio, ie more or less similar to the average levels in 2023.

Source: RHB Securities Research - 2 May 2024