Stronger Consumer Loans Upheld, Easier Business Loans

Total loans and advances advanced by 5.8% YoY and 0.3% MoM in May 2024. While the consumer segment upheld a robust growth trajectory, improving by 6.6% YoY (+0.5% MoM), the business loans softened slightly to grow by 4.7% YoY (vs +5.4% YoY in April 2024). Despite that, the YTD improvement in business loans is noteworthy, rising at a YTD growth rate of 1.0% vs an increase of 0.5% in May 2023.

YoY, loans for Working Capital increased by 3.5%. However, loans for Education, Health, & Others, Agriculture, Forestry & Fishing, as well as Electricity, and Gas, Steam & Air, continued their downward trend with declines of 3.2%, 3.9% and 22.5% YoY, respectively. During the month, Transportation & Storage and Information & Communication also declined by 0.7% YoY and 2.0% YoY, respectively. Elsewhere, other segments experienced healthier loan growth namely Wholesale and Retail Trade (10.0% YoY), Water Supply, Sewerage & Waste (10.0% YoY), Finance, Insurance, & Business Activities (9.6% YoY), Accommodation & Food Services (+7.7% YoY), Manufacturing (+5.6% YoY), Mining & Quarrying (+1.4% YoY) and Construction (+0.7% YoY). Capital market activities improved in the first five months of 2024, with net funds raised by the private sector through new shares and debt securities issuance amounting to RM42.3bn (excluding redemptions) vs RM38.5bn YTD in May 2023.

Consumer Loans Led by Residential Mortgages and HP

Total consumer loans accelerated by 6.6% YoY (+0.6% 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 7.6% YoY (May 2023: +6.9% YoY). Loans for the purchase of passenger cars also climbed at a healthier rate of 10.3% YoY (May 2023: +8.9% YoY), while the yearly drawdowns for credit cards and loans for personal uses broadened by 8.9% YoY (May 2023: +15.6% YoY) and 5.0% YoY (May 2023: +3.4% YoY). However, drawdowns for the Purchase of Securities declined again by 9.3% YoY (May 2023: -6.4% YoY).

Higher Loan Applications in May, Loan Approvals Declined

Total loan applications expanded by 3.1% YoY (+13.7% MoM). Consumer loan applications grew by 4.9% YoY (+16.0% MoM), while business loan applications also rose by 0.6% YoY (+10.6% MoM). By sub-segment, loan applications for HP loans, Residential Properties, Purchase of Securities, and Personal uses rose by 1.4% YoY (+13.0% MoM), 5.7% YoY (+11.9% MoM), 29.2% YoY (+165.5% MoM) and 6.1% YoY (+11.6% MoM) while application for Credit Cards declined by 10.3% YoY (+14.0% MoM).

Total loans approved fell in May (-4.9% YoY, +9.1% MoM), led by softer business and consumer loan approvals, which declined by -8.9% YoY (+8.7% MoM) and -0.9% YoY (+9.4% MoM), respectively. The overall approval rate stood at 50%, underpinned by business and consumer approval rates of 57% and 45%, respectively. By major sub-segments, approval rates for the purchase of Residential Properties and Non-Residential Properties stood little changed at 43% (May 2023: 43%) and 49% (May 2023: 50%), while the approval rate for HP loans dipped to 57% (May 2023: 61%).

Slight Improvement in Impaired Loans

The system's total impaired loans contracted by 1.8% YoY (+0.1% MoM). By segment, consumerimpaired loans decreased by 0.6% YoY (-1.8% MoM), while the impaired loans for businesses declined by 2.7% YoY (+1.5% MoM). The ratio of net impaired loans to total gross loans for the system stood at 1.6%, little changed from 1.8% 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 was steady at 0.5%. Elsewhere, the GIL ratio for some major business segments, such as Manufacturing and Construction, improved by 30 bps YoY to 2.0% and 4.8%, respectively, while Wholesale, Retail and Trade deteriorated by 40 bps YoY to 2.2%. By purpose, the GIL ratio for loans taken for Working capital improved by 10 bps to 2.4% in May 2024.

Growth Momentum for CASA Rising, Average Lending Rates Slipped MoM

Total deposits (excluding repo) increased by 5.0% YoY (+0.3% MoM). Total CASA also steadily increased by 7.1% YoY (+0.9% MoM) in May. The CASA ratio stood at 31.0%. The system's liquidity coverage ratio (LCR) stood at 150% (May 2023: 150%), while the loan-to-fund ratio was at 82.2% (May 2023: 81.8%). Elsewhere, the average loan rate slipped to 5.35% in May 2024 from 5.36% last month but was marginally higher than 5.32% in May 2023. Meanwhile, the banking system's capital buffers remained more than adequate, with a CET1 of 14.4% and a Total Capital Ratio of 18.0%.

2024 Loan Growth Forecast Maintained at 6.1%

Taken together, we maintain the 2024 loan growth forecast at 6.1%, underpinned by consumer and business loan growth of 6.3% and 5.9%. Nevertheless, we reiterate our OVERWEIGHT call on the sector based on rising loan growth, stabilising NIM, the potential for higher NII, gradual acceleration in fee income, and healthy capital and liquidity buffers. Potential downside risks include a decline in asset quality due to concerns over rising inflationary pressures amid ongoing subsidy rationalization, persistent external shocks, weaker contributions from overseas operations, and consistently high overhead expenses. Despite these risks, the sector's outlook remains positive, supported by strong performance indicators and growth prospects.

Source: TA Research - 1 Jul 2024