• Keep OVERWEIGHT; Top Picks: AMMB, Alliance Bank, CIMB and Hong Leong Bank. Bank Negara Malaysia’s Sep 2024 statistics saw loans and deposit growth moderate to +5.6% YoY and +3.3% YoY, down from +6.4% YoY and +4.9% YoY in Jun 2024 – which suggest a potential easing in loans and deposit growth as well when banks report their 3Q24 results. Nevertheless, NII growth could be supported by earlier efforts to reprice down deposit rates while continued improvement in asset quality provides room for overlay reversals – both supportive of bottomline.

• System loans grew 5.6% YoY (+0.8% QoQ, +0.4% MoM) in Sep 2024, underpinned by the household (+6% YoY, +2% QoQ, +1% MoM), wholesale & retail trade (+10% YoY, +2% QoQ, +1% MoM) and finance (+14% YoY, -3% QoQ, +0% MoM) segments. Overall, the pace of business loans growth slowed to +5% YoY (-0.4% QoQ, +0.3% MoM), dragged down by sectors such as agriculture (-4% YoY, -7% QoQ, -6% MoM) and utilities (-12% YoY, flat QoQ, +0.1% MoM). YTD annualised loans grew at 4.5%. While this was tracking below our 5-5.5% forecast for 2024, we do not discount the possibility that year-end disbursements could accelerate, especially given YTD loan disbursements have lagged approvals (see below) .

• Mixed lending indicators. Sep 2024 was a slower month, with lower system loan applications (-5% YoY, -9% MoM), approvals (-4% YoY, -7% MoM), and disbursements YoY (-8% YoY, +1% MoM), mainly brought down by the business segment. On a YTD basis, system loan applications and approvals grew by +4% and +3%, while disbursements contracted by 2%. Households, which form the bulk of the banking system (c. 60%) should still underpin loans growth in 4Q24 with a healthy increase in loan applications YTD at +4% YoY.

• System deposits increased +3.3% YoY (-0.2% QoQ, +0.7% MoM), at a slower pace compared to loans growth. CASA (+5% YoY, flat QoQ, +1% MoM) continued to outpace fixed deposits (+3% YoY, flat QoQ, flat MoM). Subsequently, the system CASA ratio ticked up to 31.2% (Aug 2024: 31.0%, Sep 2023: 30.7%).

• Asset quality prevailing. System GIL fell 5% YoY (-2% QoQ, -2% MoM), with household GILs (44% of system GILs) down 4% YoY (-1% QoQ, flat MoM) thanks to lower mortgage GILs while business GILs fell 6% YoY (-3% QoQ, -3% MoM) thanks to the manufacturing, agriculture and mining sectors. System GIL ratio continued its downward trend to 1.54% (Aug 2024: 1.58%, Sep 2023: 1.72%) – close to the pre-COVID-19 level of 1.51%, while the LLC improved MoM to 90.8% (Aug 2024: 90.5%, Sep 2023: 91.6%) – above the pre-COVID-19 LLC of 82%. Assuming economic prospects remain robust, we see scope for overlay reversals to help support sector earnings growth.

• Other highlights. Capital ratios appear adequate – CET-1 and total capital ratios have been stable since Jan 2023 at 14-15% and 18-19%. Elsewhere, SME loans in Aug 2024 continued its strong loans growth trajectory at +10% YoY (+1% MoM), while the SME GIL ratio has been broadly stable at 3.07% (Jul 2024: 3.04%, Aug 2023: 3.17%).

Source: RHB Securities Research - 1 Nov 2024