Surge in business loans

Total loans and advances advanced at a stronger-than-expected 6.4% YoY and 0.8% MoM in June 2024. While the consumer segment upheld a robust growth trajectory, improving by 6.6% YoY (+0.5% MoM), the business loans surged by 6.2% YoY (vs +4.7% YoY in May 2024), bringing the YTD improvement in business loans to 2.3% vs an increase of 0.4% in June 2023.

YoY, loans for Working Capital increased by 6.8%. However, loans for Education, Health, & Others, Agriculture, Forestry & Fishing, as well as Electricity, Gas, Steam & Air, continued their downward trend with declines of 4.8%, 2.5% and 20.4% YoY, respectively. Loans for Mining & Quarrying also declined by 0.1% YoY after rising for six straight months. Meanwhile, loans for Transportation & Storage and Information & Communication rebounded in June, rising by 0.2% YoY and 6.3% YoY, respectively. Elsewhere, other segments which experienced stronger YoY loan growth include Wholesale and Retail Trade (10.8% YoY), Water Supply, Sewerage & Waste (9.8% YoY), Finance, Insurance, & Business Activities (12.4% YoY), Accommodation & Food Services (+7.9% YoY), Manufacturing (+5.7% YoY) and Construction (+3.5% YoY). Capital market activities remained healthy in the first six months of 2024, with net funds raised by the private sector through new shares and debt securities issuance amounting to RM54.2bn (excluding redemptions) vs RM54.5bn YTD in June 2023.

Consumer Loans Led by Residential Mortgages and HP

Total consumer loans accelerated by 6.6% YoY (+0.5% 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 (June 2023: +6.9% YoY). Loans for the purchase of passenger cars also climbed at a healthy rate of 9.9% YoY (June 2023: +8.8% YoY), while the yearly drawdowns for credit cards and loans for personal uses broadened by 9.2% YoY (June 2023: +14.3% YoY) and 4.8% YoY (June 2023: +3.4% YoY), respectively. However, drawdowns for the Purchase of Securities declined again by 8.3% YoY (June 2023: -7.5% YoY).

Higher Loan Applications, Stronger Loan Approvals in June

Total loan applications expanded by 1.6% YoY (-12.0% MoM). Consumer loan applications grew by 0.1% YoY (-14.8% MoM), while business loan applications also rose by 3.5% YoY (-8.2% MoM). By sub-segment, loan applications for HP loans, Residential Properties, Purchase of Securities, and Personal uses rose by 1.4% YoY (-11.5% MoM), 0.8% YoY (-13.2% MoM), 3.7% YoY (-50.4% MoM) and 2.2% YoY (-12.1% MoM) while application for Credit Cards declined by 15.5% YoY (- 11.6% MoM).

Total loans approved strengthened in June (+9.1% YoY, -4.7% MoM), led by healthier business and consumer loan approvals of 10.7% YoY (-4.1% MoM) and 7.7% YoY (-4.7% MoM), respectively. The overall approval rate stood at 55%, underpinned by business and consumer approval rates of 61% and 50%, respectively. By major sub-segments, approval rates for the purchase of Residential Properties stood little changed at 45% (June 2023: 42%), while the approval rate for Non-Residential Properties and HP loans dipped to 44% (June 2023: 61%) and 57% (June 2023: 61%), respectively.

Slight Improvement in Impaired Loans

The system's total impaired loans contracted by 0.9% YoY (-1.2% MoM). By segment, consumerimpaired loans decreased by 2.1% YoY (-1.4% MoM), while the impaired loans for businesses were steady YoY (-1.0% 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 June 2023, the GIL ratio for Residential, Non-Residential loans and Credit Cards improved by 10, 10 and 20 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, improved by 40 bps YoY to 1.8%. Construction and Wholesale, Retail and Trade deteriorated by 10 and 30 bps YoY to 4.9% and 2.2%. By purpose, the GIL ratio for loans taken for Working capital improved by 10 bps to 2.3% in June 2024.

Growth Momentum for CASA Rising, Average Lending Rates Slips

Total deposits (excluding repo) increased by 4.7% YoY (-0.2% MoM). Total CASA also steadily increased by 7.0% YoY (+0.8% MoM) in June. The CASA ratio rose to 31.3%. The system's liquidity coverage ratio (LCR) stood at 155% (June 2023: 155%), while the loan-to-fund ratio was at 82.8% (June 2023: 81.7%). Elsewhere, the average loan rate slipped to 5.32% in June 2024 from 5.35% last month and 5.37% in June 2023. Meanwhile, the banking system's capital buffers remained more than adequate, with a CET1 of 14.3% and a Total Capital Ratio of 17.9%.

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%, respectively. 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 rationalisation, persistent external shocks, weaker contributions from overseas operations, and consistently high overhead expenses. Despite these risks, the sector's outlook remains positive, supported by solid performance indicators and growth prospects. We have BUY recommendations on Public Bank, CIMB, Maybank, and Hong Leong. AMMB and Alliance Bank are downgraded to HOLD due to the narrower risk-return potential from the recent increase in their share price. Maintain HOLD on RHB Bank and SELL on Affin Bank.

Source: TA Research - 1 Aug 2024