• Top Picks: CIMB, AMMB, Hong Leong Bank, and Alliance Bank Malaysia. Bank Negara Malaysia’s (BNM) banking sector statistics for Dec 2023 provided a sneak peak to the upcoming results season for the banks. Key highlights from our reading of the numbers were a QoQ pick-up in loans growth, stable lending and deposit rates, and resilient asset quality. There is no change to our NEUTRAL rating for the sector.

• System loans rose 5.3% YoY (+2.2% QoQ, +1.8% MoM) in Dec 2023, ahead of our 2023 estimate of 4-4.5%. YoY, loans to the household (+6%), finance (+11%), and wholesale & retail trade (+6%) sectors expanded the most, mitigated slightly by the utilities sector (-11%). QoQ, household loans grew by a stable +2% (MoM: +1%), while business loans accelerated to +3% (MoM: +2%) thanks to the utilities sector (+10% QoQ, +14% MoM). For 2024, we expect business loans to keep its strong momentum going, while household loans growth could take to the backseat from a higher base. Our 2024 system loans growth forecast of 4.5-5% is maintained for now.

• A strong month for loan demand. System loan applications added 30% YoY (MoM: +6%) in Dec 2023, with households (+30% YoY, +12% MoM) and businesses (+31% YoY, -2% MoM) both demonstrating strength. Business loan disbursements, however, was still muted (-6% YoY, -1% MoM), although we should see a pick-up in 2024, especially with the gradual rollout of big ticket public infrastructure projects.

• System deposits grew 6% YoY (+2% QoQ, +1% MoM), mostly driven by nonretail deposits (+9% YoY, +7% QoQ), and slightly outpacing system loans growth during the same period. Interestingly, fixed deposits stayed flat QoQ even during the year-end promotional season, while CASA deposits rose 4% during the quarter. This should provide some cushion to NIM, especially if competition on promotional deposit rates remains rational.

• Asset quality still sound. System GILs declined 2% QoQ (-1% MoM, +1% YoY) in Dec 2023 on lower delinquencies in the manufacturing (-13% QoQ) and construction (-5% QoQ) sectors, while household impairments stayed largely flat. The GIL ratio eased to 1.65% from 1.72% in Sep 2023 (Dec 2022: 1.72%) – the Dec 2023 GIL ratio is the lowest level seen since Nov 2021. LLC remains at a decent 92% (Sep 2023: 92%, Dec 2022: 98%), well above the c.85% pre-pandemic average level.

• Other highlights. Capital ratios appear adequate – the CET-1 and total capital ratios have been largely stable throughout the year at 14-15% and 18- 19%. The banking system also remains decently liquid, with 86% loansdeposits ratio and 161% liquidity coverage ratio.

• Still NEUTRAL. While a positive macroeconomic backdrop could lend support to banking stocks’ performance this year, we expect the sector’s earnings to moderate back to trend growth (2024F: +6% YoY). Hence, we do not see meaningful sector outperformance this year.

Source: RHB Securities Research - 2 Feb 2024