• Top Picks (in order of preference): CIMB, AMMB, Hong Leong Bank, Alliance Bank Malaysia, and Public Bank. System loans growth saw a slight moderation to 5.8% YoY in May while leading loans growth indicator eased marginally on a YTD basis. On the other hand, YoY CASA growth ticked up while overall deposit growth was stable. Asset quality held up MoM. We remain NEUTRAL on the sector amid a backdrop of normalising sector earnings growth. We continue to prefer stocks with better growth prospects – earnings and/or dividends.

• System loans grew 5.8% YoY (+0.3% MoM), down from +6% YoY in April. May’s growth was driven by the household segment (+6.5% YoY) with loans for the purchase of cars (+10% YoY) and mortgages (+8% YoY) being the key drivers. Meanwhile, business loans grew at +4.8% YoY. Notable sectors that recorded an increase in loans include finance (+12% YoY) and wholesale & retail (+10% YoY), while education & health (-3% YoY) and agriculture (-4% YoY) recorded decreases. We keep our 2024F system loans growth at 5-5.5% YoY.

• Mixed lending indicators. In May, both loan applications and loan approvals grew strongly MoM at +14% and +9%, possibly due to the Aidil Fitri festivities in April. On a YoY basis however, growth in loan applications was at 3%, and loan approvals contracted by 5% off a higher base last year. On a cumulative basis, system loan applications in 5M24 rose by 4% YoY, but approvals and disbursements grew at a slower rate of +1% YoY.

• System deposits grew 4.9% YoY (+0.5% MoM). This was mostly driven by CASA at +7.4% YoY (+0.9% MoM), while fixed deposits only grew at 2.6% YoY (flat MoM). Consequently, this led to a higher CASA ratio at 31.0% in May compared to 30.8% in April (May 2023: 30.3%).

• Asset quality remains stable. System GILs was 2% lower YoY (flat MoM) with decreases across most sectors including household (-1% YoY), which offset the increases in GILs from sectors such as wholesale & retail (+26% YoY), finance (+22% YoY) and transport (+15% YoY). The system GIL ratio remained unchanged at 1.63% (May 2023: 1.75%), but LLC continued its downtrend to 90.8% in May (May 2023: 95.5%) – albeit at still healthy levels.

• Other highlights. The banking system’s capital buffers remain sufficient – CET-1 is at 14.4%, system LDR at 86.3%, and liquidity coverage ratio at 150%.

Source: RHB Securities Research - 1 Jul 2024