Investment Highlights

• Industry loan growth was stable at 6% YoY, supported by sustained growth in household and non-household loans. YTD loans grew by 4.3% annualised in line with our loan growth expectation of 4-5% for 2024. Household loan growth was stable at 6.4% YoY, supported by steady momentum of mortgage and loans for purchase of passenger vehicles. Growth in non-household loans in Apr 2024 inched higher to 5.6% YoY vs. 5.5% YoY in Mar 2024. Apr 2024 saw a growth in working capital loans of 4.7% YoY.

• Growth in loan applications and approvals picked up pace in Apr 2024. Growth of both household and non-household loan applications rose in Apr 2024 while the momentum of household and non-household loan approvals picked up pace.

• Sustained total deposits and CASA growth. Deposit growth was unchanged at 5% YoY in Apr 2024. This led to stable LD ratio for the sector at 86.3%. The sector’s loan-to-fund ratio/loan-to-fund and equity ratio was steady at 82.1%/71.4% in Apr 2024. Sector LCR increased slightly to 152% in Apr 2024 from 150% in Mar 2024, attributed to higher LCRs of commercial, islamic and investment banks. CASA growth was sustained at 6.7% YoY in Apr 2024. However, the banking system’s CASA ratio slipped marginally to 29.5% as of end-Apr 2024 vs. 29.7% in Mar 2024.

• Uptick in loan impairments and higher provisions for the sector in Apr 2024. The industry’s GIL/NIL remained stable at 1.6%/1.1%. The industry’s outstanding impaired loans climbed 0.8% MoM or RM270mil in Apr 2024. The increase was driven largely by higher impairments of loans to the agriculture, manufacturing, utilities, wholesale & retail trade, construction, transport storage, communication, hotels, finance, insurance, business activities and household sectors. As a result, the sector’s loan loss cover (LLC) slipped to 91.8% in Apr 2024 (Mar 2024: 92.1%). Including regulatory reserves, LLC declined marginally to 120.4% in Apr 2024 from 121.1% in Mar 2024.

• The sector's CET1/Tier 1/Total capital ratios were slightly lower at 14.5%/15%/18.1% in Apr 2024. This has been contributed by an increase in total risk-weighted assets.

• Maintain NEUTRAL on the sector with BUYs on CIMB (FV: RM7.10/share), Hong Leong Bank (FV: RM24.10/share), RHB Bank (FV: RM6.10/share) and ABMB (FV: RM4.30/share). Presently, we have a HOLD recommendation on Public Bank. Nevertheless, we see any retracement in the share price to below RM4.10/share as an opportunity to accumulate the stock.

Source: AmInvest Research - 6 Jun 2024