Stronger Business Loans Upheld

Total loans and advances advanced by 5.8% YoY and 0.4% MoM in February 2024. The business segment upheld a robust growth trajectory, to improve by 4.9% YoY and 0.6% MoM. The improvement in business loans is noteworthy, rising at a YTD growth rate of 0.4% vs a contraction of 0.3% in February 2023.

YoY, loans for Working Capital increased by 5.1% in purpose, showing a slight uptick from the previous February's 4.5% increase. However, loans for Agriculture, Forestry & Fishing, as well as Electricity, and Gas, Steam & Air, continued their downward trend with declines of 5.2% and 13.0% YoY, respectively. Conversely, other segments experienced healthy loan growth, particularly Finance, Insurance, & Business Activities (9.6% YoY), Mining & Quarrying (+9.2% YoY), Wholesale and Retail Trade (9.1% YoY), Manufacturing (+3.7% YoY), Education, Health, and Others (3.6% YoY), Water Supply, Sewerage & Waste (3.3% YoY), and Transportation & Storage (2.1% YoY).

The Construction sector rebounded with a modest growth of 0.3% YoY (0.9% MoM increase) after a period of contraction since October 2023. Additionally, Accommodation & Food Services showed a positive turnaround with a 5.0% YoY increase, along with Information & Communication, which rose by 2.7% YoY. On the other hand, capital market activities slowed in the first two months of 2024, with net funds raised by the private sector through new shares and debt securities issuance amounting to RM10.4bn (excluding redemptions), declining from RM11.0bn YTD in February 2023.

Steady Consumer Loans

Total consumer loans accelerated by 6.5% YoY (+0.3% 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 more robust pace of 7.5% YoY (February 2023: +6.9% YoY). Loans for the purchase of passenger cars also climbed at a healthier rate of 10.1% YoY (February 2023: +7.8% YoY), while the yearly drawdowns for credit cards and loans for personal uses broadened by 10.7% YoY (February 2023: +15.7% YoY) and 6.0% YoY (February 2023: +2.4% YoY). However, drawdowns for the Purchase of Securities declined again by 11.5% YoY (February 2023: -1.3% YoY).

Softer Loan Applications and Approvals

Total loan applications declined by 11.3% YoY (-18.1% MoM). Consumer loan applications fell by 15.6% YoY (-24.4% MoM), while business loan applications also contracted by 5.2% YoY (-8.6% MoM). By sub-segment, loan applications for HP loans, Residential Properties, Purchase of Securities and Credit Cards declined by 4.5% YoY (-22.4% MoM), 21.7% YoY (-24.1% MoM), 18.7% YoY (-54.2% MoM) and 28.0% YoY (-18.8% MoM). Meanwhile, applications for Personal Loans rose by 4.6% YoY (-13.4% MoM).

Total loans approved declined in February (-16.8% YoY, -25.2% MoM). We believe the decrease, led by easier business and consumer loan approvals, which slipped by 22.1% YoY (-25.8% MoM) and 11.8% YoY (-24.7% MoM), respectively, were due to the holiday-shortened month. The overall approval rate stood at 46%, underpinned by business and consumer approval rates of 46% and 45%, respectively. By major sub-segments, approval rates for the purchase of Residential Properties and Non-Residential Properties rose to 41% (February 2023: 38%) and 50% (February 2023: 36%), while the approval rate for HP loans dipped to 59% (February 2023: 62%).

Slight Increase in Impaired Loans

The system's total impaired loans rose by 0.7% YoY (+0.8% MoM). By segment, consumerimpaired loans accelerated by 6.9% YoY (+1.4% MoM), while the impaired loans for businesses declined by 3.8% YoY (+0.3% MoM). The ratio of net impaired loans to total gross loans for the system stood at 1.6%, little changed from 1.7% a year ago. Compared to a year ago, the GIL ratio for Residential, Non-Residential loans and Credit Cards improved by 10 bps each to 1.3%, 1.6% and 0.9%, respectively. The GIL ratio for HP loans deteriorated by 10 bps to 0.5%. Elsewhere, the GIL ratio for some major business segments, such as Manufacturing and Construction, improved by 30 and 20 bps YoY to 2.0% and 4.7%, respectively, while Wholesale, Retail and Trade deteriorated by 70 bps YoY to 2.2%. By purpose, the GIL ratio for loans taken for Working capital improved by 30 bps to 2.2% in February 2024.

Steady Growth in CASA Deposits, Average Lending Rates Slipped MoM

Total deposits (excluding repo) increased by 4.0% YoY (+0.4% MoM). Total CASA also steadily increased by 3.9% YoY (+0.7% MoM) in February. The CASA ratio stood at 31.0%. The system's liquidity coverage ratio (LCR) stood at 154% (vs 151% in February 2023), while the loan-to-fund ratio was at 81.8% (February 2023: 81.6%). Elsewhere, the average loan rate slipped to 5.4% in January 2024 from 5.45% last month but was higher than 4.97% in January 2023. Meanwhile, the banking system's capital buffers remained more than adequate, with a CET1 of 14.6% and a Total Capital Ratio of 18.2%.

2024 Loan Growth Forecast Maintained at 5.8%

Taken together, we maintain the 2024 loan growth forecast at 5.8%, underpinned by consumer and business loan growth of 5.9% and 5.6%. Nevertheless, we reiterate our NEUTRAL call on the sector due to several potential downside risks to the sector’s earnings, such as 1) underlying fears of a deterioration in asset quality due to significant external shocks, such as a broader regional conflict in the Middle East that could result in a substantial increase in inflationary pressures, 2) potential softer contributions from overseas operations, and 3) sustained elevation in overhead expenses.

Source: TA Research - 1 Apr 2024