• Top Picks in order of preference: CIMB, AMMB, Hong Leong Bank, and ABMB. System loans continued to chart steady growth in November, while system loan applications, particularly from the business segment, remained healthy. Asset quality improved with GIL ratio marginally lower and LLC ticked up, while CASA ratio was also higher MoM as the fixed deposits (FD) growth stayed flat. We maintain our NEUTRAL rating on the sector.

• System loans up 4.9% YoY (+0.8% MoM) – the highest since Mar 2023 (+5%) – mostly underpinned by stable household loans (+5.8% YoY), and business loans increased 3.5% YoY after a slower 1.5% YoY increase in October. The increase in loans continued to be driven by the purchase of residential properties (+7% YoY, +1% MoM) and cars (+10% YoY, +1% MoM), while the sectors that recorded the largest increases include finance (+8% YoY, +2% MoM) and retail (+6% YoY, +1% MoM). YTD, system loans have increased 4.2% (annualised: 4.5%). We maintain our system loans growth forecast at 4-4.5% in 2023, followed by a slightly quicker clip of 4.5- 5% in 2024, thanks to the business segment on the back of stronger economic activities.

• Strong lending demand. On a 3-month moving average (3MMA) basis, system loan applications rose 16% YoY (-6% MoM), loan approvals +6% YoY (-6% MoM), and disbursements +7% YoY (+1% MoM). The increase in loan applications was mostly driven by the business segment, which increased 22% YoY (-9% MoM).

• System deposits up 5.3% YoY (+0.4% MoM). This was driven by FD, which was up 5.6% YoY, but flat MoM as the 12-month FD rate continued to ease downwards to 2.83%. Meanwhile, CASA steadily increased by 1.2% YoY, +0.8% MoM. Consequently, the system CASA ratio ticked up higher to 31% (Oct 23: 30.8%, Nov 22: 31.7%).

• System GILs continued its downtrend, dropping 3.3% YoY (-0.4% MoM). Across sectors, only households (+7% YoY, flat MoM) and retail (+33% YoY, +1% MoM) recorded YoY increase in GILs. By purpose, cars (+20% YoY, +3% MoM), houses (+5% YoY, flat MoM), and personal use +14% YoY, +1% MoM) led the increase. Hence, system GIL ratio eased MoM to 1.69% in November (Oct 23: 1.7%, Nov 22: 1.83%) while LLC increased MoM to 92.9% (Oct 23: 91.3%, Nov 22: 98.1%), recovering from a low of 90.6% in August.

• Other highlights. The banking system’s capital buffers remain ample – CET-1 was at 14.4%, system LDR 85.9%, and liquidity coverage ratio 150% in October. For the SME segment, loans grew 7% YoY in October (+0.6% MoM), mostly led by the wholesale & retail (+9% YoY, +1% MoM) and finance sectors (+6% YoY, +1% MoM). The SME GIL ratio declined sequentially, but still remained high at 3.13% (Sep 23: 3.13%, Nov 22: 2.95%). 

Source: RHB Securities Research - 2 Jan 2024