Maintain NEUTRAL. Top Picks: CIMB, Hong Leong Bank, and AMMB. Bank Negara Malaysia’s (BNM) banking system statistics for August showed YoY loans growth maintained at 4.2%, but lending indicators are softer with lower loan applications and approvals, partly due to a higher base last year. System CASA ratio ticked up MoM as the 12-month fixed deposit (FD) rate declined from its peak in May. We maintain our call on the sector amid a backdrop of normalising earnings growth heading into 2024.
System loans grew 4.2% YoY (+0.7% MoM) in August, as lending to households (+6% YoY, +1% MoM) and non-households (+2% YoY, +1% MoM) were sustained. This was supported by higher growth across most loan purposes such as transport vehicles (+9% YoY, +1% MoM), residential property (+9% YoY, +1% MoM), and personal use (+4% YoY, +1% MoM). The sectors that recorded lower loans include utilities (-9% YoY, -1% MoM) and manufacturing (-1% YoY, +1% MoM). On a YTD basis, system loans grew 2.3% (annualised: +3.4%). We maintain our 2023 system loans growth forecast at 4-4.5%.
Stable lending indicators. On a 3-month moving average (3MMA) basis, lending indicators reported a slight decline YoY partly due to a higher base last year. System loan applications dropped 2% YoY (+3% MoM), and loan approvals fell 8% YoY (+1% MoM), mostly from lower approvals for the business segment (-14% YoY, +2% MoM) whereas loan approvals for households were flattish. Loan disbursements recorded YoY and MoM increases of 5% and 2%.
System deposits grew 4.6% YoY (+0.6% MoM), which outpaced loans growth during the same period. This continued to be driven by FD which grew 7% YoY, although it recorded a first MoM decline (-0.6%) since January. This is as the 12-month FD rate declined further to 2.86% after hitting a peak of 2.90% in May. CASA was 2% lower YoY, but ticked up +2% MoM. This led to a slightly higher CASA ratio of 30.8% (July: 30.4%, Aug 2022: 32.3%).
Healthy asset quality. System GILs rose slightly (+1% YoY, +2% MoM) as the increase in GILs sectors such as wholesale & retail (+32% YoY, +4% MoM), construction (+3% YoY, +2% MoM), and households (+14% YoY, flat MoM) offset the decrease in GILs in other sectors. Consequently, system GIL ratio ticked up to 1.78% in August (July: 1.76%, Aug 2022: 1.84%) and system LLC fell to 90.6% from 91.5% in July (Aug 2022: 97.3%).
Other highlights. The banking system remains healthy, with sufficient capital buffers – CET-1 stood at a 14.5%. Liquidity is ample with LDR at 86.1% and liquidity coverage ratio at a high 149%. For the SME segment, loans grew 7% YoY (flat MoM) from increases across all sectors barring mining & quarrying (-2% YoY, -1% MoM). The SME GIL ratio ticked up slightly to 3.09% in July (June: 3.03%, Jul 2022: 2.88%).
This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....