• 3Q24 sector core PATAMI grew at a faster pace of 5% QoQ (vs 2Q24: +2% QoQ)

• System loans growth is gaining momentum, driven by non-household segments

• Reiterate OVERWEIGHT on the banking sector. Sector top picks: liquid large-cap with strong ASEAN footprint (CIMB, TP: RM9.30; Maybank, TP: RM11.40), defensive banks with strong asset quality (PBB, TP: RM5.10; HLB, TP: RM24.30), high dividend yielder (RHB, TP: RM7.50), and a small-cap exposure (AMMB, TP: RM6.30)

3Q24 results exceeded expectations

Overall 3Q24 results came in above expectations, with 4 banks (Affin, AMMB, CIMB, RHB) delivered stronger-than-expected results, while the remaining 4 (Alliance, HLB, Maybank, PBB) met expectations. Sector net profit rose 5% QoQ (2Q24: +2% QoQ) as net fund-based income improved 2% QoQ on lower funding cost (estimated sector NIM +4bps QoQ), and higher fee-based income (+5% QoQ), benefitting from robust core fees and capital market related activities. Post results, we upgraded Maybank to a BUY with an unchanged TP of RM11.40 after the recent pullback in share price. We lifted our target prices for RHB (to RM7.50, from RM7.40) and AMMB (to RM6.30, from RM6.00), maintaining our earlier BUY ratings.

System loans growth accelerates in Oct24

System loans grew by +0.7% MoM in Oct24 (Sept24: +0.4% MoM), driven by increases in working capital (+1.1%) and mortgages (+0.6%). On a YoY basis, system loans growth rose 6% YoY (Sept24: +5.6% YoY), supported by non-household loans (+2.3% YoY, Sept24: +1.9%) and household loans (+3.7%, Sept24: +3.7%). Loan demand weakened by -0.1% MoM, as decline in household applications (-3.8% MoM) was offset by stronger growth in non-household segments (+4.3% MoM). The resilience in the non-household segment appears to reflect a robust pipeline of SME loans, driven by an improving business outlook and trickle-down effects of FDI inflows into the broader economy. Average lending rate eased by 3bps MoM at 5.20%.

Steady system deposit at +0.3% MoM

System deposits grew +0.3% MoM with annualised growth at 1.7% for 10M24. The system loan-to-deposit (LDR) ratio remained steady at 88.0%. Oct24 deposit growth rose +0.2% MoM (Sept24: +0.2%), with FD growth accelerating to 3.5% YoY (Sept24: +2.8%). Meanwhile, CASA deposits declined -0.2% MoM (Sept24: +1.0%), resulting in a slight drop in CASA ratio to 31% (Sept24: 31.2%). FD rates continue to decline across the board, while savings deposit rate edged up to 0.87% (+2bps MoM) after 4 consecutive quarters of decline (May24: 0.94%). From bank briefings, heightened competition for wholesale deposits is evident, similar to previous years. Retail rates for shorter tenures (3–6 months), may rise by 5–10bps, though these campaigns may not reflect in overall bank statistics.

Asset quality continues to improve

System quality continued to improve in Oct24, with overall system GILs ratio falling -0.6% MoM (-5.1% YoY). Household GILs declined -1.3% MoM (-5.9% YoY), while business GILs were marginally lower at -0.1% MoM (-4.5% YoY). Key contributors to the MoM decline included mortgages (-0.5%), and personal loans (-4.7%), offsetting a 1.1% rise in auto GILs. The LLC ratio increased by 0.4bps to 91.2% (up from 90.8% in Aug24).

Source: Philip Capital Research - 2 Dec 2024