Healthy YTD Business Loans

Total loans and advances advanced by another stronger-than-expected 6.7% YoY and 0.1% MoM in July 2024. While the consumer segment upheld a robust growth trajectory, rising by 6.6% YoY (+0.5% MoM), the business loans climbed 6.1% YoY (-0.4% MoM), bringing the YTD improvement in business loans to 1.9% vs an increase of 0.1% in July 2023.

YoY, loans for Working Capital increased by 7.1%. By sector, loans for Education, Health, & Others, and Electricity, Gas, Steam & Air continued their downward trend with 6.3% and 16.6% YoY declines, respectively. Loans for Mining & Quarrying also declined again by 1.4% YoY after rising for six straight months from Dec 2023 to May 2024. Meanwhile, loans for Agriculture, Forestry & Fishing rebounded in July, rising by 0.7% YoY. Elsewhere, other segments which experienced stronger YoY loan growth include Finance, Insurance, & Business Activities (13.2% YoY), Wholesale and Retail Trade (10.6% YoY), Water Supply, Sewerage & Waste (10.4% YoY), Accommodation & Food Services (+7.4% YoY), Manufacturing (+5.9% YoY), Information & Communication (+2.2% YoY), Transportation & Storage (+2.1% YoY) and Construction (+1.6% YoY). Capital market activities remained healthy in the first seven months of 2024, with net funds raised by the private sector through new shares and debt securities issuance amounting to RM70.1bn (excluding redemptions).

Consumer Loans Supported 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 (July 2023: +6.9% YoY). Loans for the purchase of passenger cars also climbed at a healthy rate of 10.1% YoY (July 2023: +8.8% YoY), while the yearly drawdowns for credit cards and loans for personal uses broadened by 7.8% YoY (July 2023: +13.0% YoY) and 4.4% YoY (July 2023: +3.7% YoY). However, drawdowns for the Purchase of Securities declined again by 7.2% YoY (July 2023: -7.5% YoY).

Robust Loan Applications and Approvals in July

Total loan applications expanded by 17.6% YoY (+24.2% MoM). Consumer loan applications grew by 20.4% YoY (+24.6% MoM), while business loan applications rose by 14.2% YoY (+23.7% MoM). By sub-segment, loan applications for HP loans, Residential Properties, Purchase of Securities, and Personal uses rose by 17.1% YoY (+23.5% MoM), 15.8% YoY (+18.3% MoM), 151.6% YoY (+145.1% MoM) and 19.3% YoY (+22.7% MoM) while application for Credit Cards turned around to increase by 11.5% YoY (+27.4% MoM).

Total loans approved also strengthened in July (+15.0% YoY, +19.0% MoM), led by healthier business and consumer loan approvals of 12.4% YoY (+27.3% MoM) and 17.9% YoY (+11.2% MoM), respectively. The overall approval rate stood at 52%, underpinned by business and consumer approval rates of 62% and 45%, respectively. By major sub-segments, approval rates for the purchase of Residential Properties stood little changed at 44% (July 2023: 42%), while the approval rate for Non-Residential Properties climbed to 55% (July 2023: 51%). Meanwhile, the approval rate for HP loans slipped to 55% (July 2023: 60%).

Contraction in Total Impaired Loans

By segment, consumer-impaired loans decreased by 7.4% YoY (-0.3% MoM), while impaired business loans fell by 2.4% YoY (-1.3% 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 July 2023, the GIL ratio for Residential, Non-Residential loans and Credit Cards improved by 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 and Construction, improved by 40 and 10 bps YoY to 1.9% and 4.8%. Wholesale, Retail and Trade deteriorated by 20 bps YoY to 2.2%. By purpose, the GIL ratio for loans taken for Working capital improved by 30 bps to 2.2% in July 2024.

Growth Momentum for CASA Rising, Average Lending Rates Slipped

Total deposits (excluding repo) increased by 4.8% YoY (-0.3% MoM). Total CASA also steadily increased by 5.9% YoY (-1.7% MoM) in July. The CASA ratio rose to 30.9% from 30.5% last year. The system's liquidity coverage ratio (LCR) stood at 151% (July 2023: 156%), while the loan-tofund ratio was at 83.0% (July 2023: 82.0%). Elsewhere, the average loan rate slipped to 5.30% in July 2024 from 5.32% last month and 5.46% in July 2023. Meanwhile, the banking system's capital buffers remained more than adequate, with a CET1 of 14.8% and a Total Capital Ratio of 18.5%.

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%. 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 declining 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 recommend BUY for Public Bank, AMMB, CIMB, Maybank, Hong Leong, and Alliance Bank. Sell reiterated for Affin Bank. HOLD RHB Bank as the risk-reward potential has narrowed due to the recent steep increase in the share price.

Source: TA Research - 4 Sept 2024