Healthy momentum in consumer loans driven by residential mortgages and HP

Loans and advances rose at a steady pace of 4.2% YoY (+0.7% MoM) in August. YTD, loans and advances were higher by 2.3% vs. 3.8% a year ago. By segment, consumer loans grew by 6.0% YoY (+0.7% MoM). Residential Mortgages, which account for a sizeable chunk (around 64%) of total consumer loans, continued to support growth in the segment, increasing at a stronger pace of 7.1% YoY (Jul 23: +6.9% YoY). Loans for the purchase of passenger cars also climbed at a healthier rate of 9.1% YoY (Jul 23: +8.9% YoY), while the yearly drawdowns for credit cards broadened at 12.7% YoY (Jul 23: +13.0% YoY). However, drawdowns for the Purchase of Securities declined again by 9.8% YoY (Jul 23: -8.8% YoY).

Modest YoY increase in business loans, Slight pickup in capital market activities

Total business loans rose by 0.7% MoM and 1.8% YoY (Jul 23: +2.0% YoY). By sub-segment, loans for Working Capital increased by 0.4% YoY (Jul 23: +1.5% YoY). Loans for Mining & Quarrying, Manufacturing, and Accommodation & Food Services continued to decline by 15.7%, 1.4% and 1.9% YoY, respectively. Loans for Construction, Electricity, Gas, Steam & Air and Agriculture, Forestry & Fishing also decreased by 0.3%, 10.3% and 5.5% YoY, respectively. Loan growth in all other segments remained healthy, led by Information & Communication (13.7% YoY), Education, Health and Others (6.7% YoY), Finance, Insurance, & Business Activities (6.0% YoY), Wholesale and Retail Trade (3.2% YoY), Transport & Storage (1.7% YoY) and Water Supply, Sewerage & Waste (1.2% YoY). Elsewhere, capital market activities rose slightly as the net funds raised YTD by the private sector through the issuance of new shares and debt securities in 2023 (excluding redemptions) grew to RM78.5bn (YTD 2022: RM74.4bn).

Increase in yearly loan applications, Approvals lower YoY

Total loan applications jumped by 8.1% YoY (+13.2% MoM). Consumer loan applications rose by 6.6% YoY (+12.7% MoM), while business loan applications increased by 10.0% YoY (+13.8% MoM). By sub-segment, loan applications for Residential Properties and Credit Cards declined by 3.2% YoY (+3.6% MoM) and 1.0% YoY (+12.3% MoM), while HP and loan applications for the Purchase of Securities advanced by 1.5% YoY (+3.4% MoM) and 134.1% YoY (+228.7% MoM).

Total loans approved fell in August (-8.6% YoY, +11.0% MoM) on a yearly basis. The fall was led by softer business loans, which contracted by 24.3% YoY (+0.9% MoM). Meanwhile, the total loans approved for consumer loans expanded by 12.4% YoY (+22.1% MoM). The overall approval rate stood at 52%, underpinned by business and consumer approval rates of 55% and 50%, respectively. By major sub-segments, approval rates for the purchase of Residential Properties and Non-Residential Properties stood at 44% and 50%, while the approval rate for HP loans stood at 63%.

Increase in overall impaired loans easing

The system's total impaired loans rose by 0.8% YoY (+1.6% MoM). By segment, consumerimpaired loans grew by 14.9% YoY (unchanged MoM), while the impaired loans for businesses declined by 8.0% YoY (+2.9% MoM). The ratio of net impaired loans to a total net loans for the system stood at 1.11%, little changed from 1.13% a year ago. Repayments improved by 6.5% YoY (-0.5% MoM). Compared to a year ago, the GIL ratio for Credit Cards, HP and Residential loans deteriorated by 20, 10 and 10 bps to 1.1%, 0.5% and 1.5%, respectively. Non-Residential loan was stable at 1.8%. Elsewhere, the GIL ratio for some major business segments, such as Manufacturing and Construction increased by 10 bps YoY to 2.3% and 4.9%, respectively while Wholesale, Retail and Trade deteriorated by 50 bps YoY to 2.0%. By purpose, the GIL ratio for loans taken for Working capital rose by 10 bps to 2.6% in August.

CASA deposits contracted again, Average lending rates slipped MoM

Total deposits (excluding repo) increased by 2.5% YoY (+0.4% MoM). Total CASA contracted again by -2.7% YoY (+1.2% MoM) in August, compared to an increase of 6.7% YoY (-0.5% MoM) growth a year ago. The CASA ratio stood at 30.8%. The system's liquidity coverage ratio (LCR) rose to 149% (141% in August 2022), while the loan-to-fund ratio was at 82.3% (August 2022: 81.8%). Elsewhere, the average loan rate slipped to 5.43% in August 2023 from 5.46% last month. Meanwhile, the banking system's capital buffers remained more than adequate, with a CET1 of 14.5% and a Total Capital Ratio of 18.2%.

2023 loan growth forecast lowered to 4.8%

Loan growth continues to trail behind our forecast of 5.5% for 2023. As such, we revise our loan growth projections to 4.8%. We reiterate our NEUTRAL call on the sector for now, as we foresee earnings in 2023 to be dampened by more moderate loan growth, NIM compression, lacklustre fee income and rising overhead expenses. Nevertheless, on a positive note, we foresee sector earnings to be supported by healthier investment income, a benign asset quality outlook, and ample capital and liquidity reserves in the banking system. Other potential downside risks in 2023 include uncertainties surrounding the ongoing geopolitical tensions, competition, rising inflationary pressures, and rising interest rates, which could pose challenges for the sector.

We maintain a BUY recommendation on AMMB, CIMB and Alliance Bank. HOLD Public Bank. Given the recent weakness in RHB Bank, Maybank and Hong Leong Bank’s share prices, we upgrade these stocks to BUY from hold as the risk-reward potential has widened to >12%. Meanwhile, we downgrade Affin to SELL from hold as its current share price has exceeded our TP of RM2.05.

Source: TA Research - 2 Oct 2023