Investment Highlights

• Industry loan growth accelerated to 5.7% YoY in Jan 2024 from 5.3% YoY in Dec 2023, underpinned by stronger growth in both household and non-household loans. YTD loans grew by 3.0% annualised and we maintain our loan growth expectation of 4%-5% for 2024F. Household loan growth rose to 6.1% YoY in Jan 2024 compared to 5.8% in Dec 2023, supported by acceleration in loans for purchase of vehicles, personal loans and outstanding of credit cards. Meanwhile, growth in non-household loans climbed to 5.1% YoY in Jan 2024 vs. 4.5% YoY in Dec 2023, contributed by continued expansion in working capital loans. By segments, the improvement was driven by stronger pace of financing to the mining, manufacturing, wholesale, restaurants, hotels, real estate, financing, insurance, business services, household and other sectors.

• Stronger growth in loan applications in Jan 2024. Jan 2024 saw higher growth of applications for both household and non- household loans. Growth of household loan approvals was higher in Jan 2024 compared to Dec 2023.

• CASA growth continued to pick up pace. Deposit growth moderated to 5.2% YoY in Jan 2024 compared to 5.6% YoY in Dec 2023. LD ratio for the sector continued to hold up at 86%. The sector’s loan-to-fund ratio/loan-to-fund and equity ratio climbed to 87.2%/75.9% in Jan 2024 vs. 81.8%/71.6% in Dec 2023. Sector LCR rose slipped marginally to 160% in Jan 2024 from 161% in Dec 2023 due to lower LCRs of islamic and investment banks while the ratio was higher for commercial banks. CASA growth continued to pick up pace for the 4th consecutive month to register a growth of 5.1% YoY in Jan 2024, up from 3.7% YoY in Dec 2023. This led to an increase in the banking system’s CASA ratio to 29.8% in Jan 2024 vs. 29.5% in Dec 2023.

• Lower impaired loans but provisions increased in Jan 2024. The industry’s GIL/NIL remained stable at 1.6%/1.1%. Total provisions for the sector rose by 0.6% MoM or RM181mil in Jan 2024. The sector’s loan loss cover (LLC) increased marginally to 93% in Jan 2024 (Dec 2023: 92%), attributed to higher provisions and lower impaired loans. Including regulatory reserves, LLC was 120.8%.

• The sector's CET1/Tier 1/Total capital ratios increased to 15%/15.8%/18.6%.

• Our NEUTRAL stance is maintained, premised on macro headwinds, ongoing geopolitical tensions, pressure on funding cost in the near term and uncertainties in yield curve which is likely to impact treasury and investment income in 2024. We maintain BUY on CIMB (FV: RM7.10/share), Hong Leong Bank (FV: RM24.10/share) and RHB Bank (FV: RM6.60/share). We have recently upgraded ABMB to a BUY with FV of RM4.10/share after rolling forward our valuation to FY25F as we see room for further upside on the stock with an undemanding valuation at 0.8x FY25F P/BV.

Source: AmInvest Research - 5 Mar 2024