• Top Picks (in order of preference): AMMB, Public Bank, Alliance Bank Malaysia and Hong Leong Bank. Bank Negara Malaysia’s July 2024 banking system statistics recorded steady loans growth at 6.4% YoY, outpacing deposits growth at 4.7%. Asset quality remained healthy as GILs continued to decline across most sectors. We maintain our NEUTRAL call with a preference on banks with stronger earnings prospects.

• System loans grew 6.4% YoY (+0.1% MoM) in Jul 2024, with a similar pace recorded by both households (+6.5% YoY, +0.5% MoM) and businesses (+6.4% YoY, -0.4% MoM). The main purposes driving household loans continue to be for the purchase of cars (+10% YoY) and mortgages (+8% YoY). Notable sectors include wholesale & retail trade (+10% YoY, 0% MoM) and finance (+19% YoY, -1% MoM) while utilities declined by 12% YoY (0% MoM). For now, we retain our 2024F system loans growth of 5-5.5% and will continue to watch out for any development of loan leading indicators. Our forecast suggests a moderation in YoY loans growth ahead, mainly in 4Q when the base effect of the pickup in 4Q23 growth kicks in. Also, the annualised pace of growth in July was 4.6%.

• Pickup in demand for loans. While MoM trends can be volatile, we note a good pickup in loan demand in July – system loan applications and approvals increased by 24% and 19% MoM. YTD system loan applications are up 6% YoY, with business loan applications growing at a faster 7% rate than households at 5%. As for YTD system loan approvals, this was up 5% YoY with business loan approvals increasing by 5%, and a slower 4% for households.

• System deposits grew 4.7% YoY (-0.6% MoM). This was mostly driven by CASA at +6.4% YoY (-1.5% MoM), while fixed deposits grew at a slower +4.7% (-0.6% MoM). The CASA ratio dropped slightly to 30.9% in July compared to 31.2% in June (July 2023: 30.4%). Annualised pace of growth for total deposits and CASA were 2% and 1%.

• Asset quality remains stable. System GILs continued to decline (-5% YoY, -1% MoM) with decreases across most sectors. Those that recorded increase in GILs include wholesale & retail (+12% YoY, +2% MoM) and finance (+16% YoY, -1% MoM). As a result, the system GIL ratio dropped slightly to 1.58% in July (June: 1.59%, July 2023: 1.76%), while LLC ticked up to 91.8% from 91.5% in June (Jul 2023: 91.5%).

• Other highlights. The banking system’s capital buffers remain sufficient – CET-1 is at 14.8%, system LDR at 87.5%, and liquidity coverage ratio at 151%. For the SME segment, loans grew 10% YoY in June (+2% MoM), mostly led by the finance (+12% YoY, +1% MoM), manufacturing (+9% YoY, 0% MoM), and wholesale & retail (+10% YoY, +3% MoM) sectors. The SME GIL ratio eased to 3.00% in June (May: 3.05%), down from a high of 3.17% in Aug 2023.

Source: RHB Securities Research - 2 Sept 2024