• Top Picks: CIMB, AMMB, Hong Leong Bank and Alliance Bank Malaysia. Bank Negara Malaysia’s (BNM) banking statistics for Jan 2024 pointed to healthy loan growth YoY, which outpaced deposit growth. However, lending indicators showed sequentially lower demand from the business segment, but we note that it is still early in the year. System GIL declined QoQ, and the CASA ratio continued to increase as CASA grew faster than fixed deposits. We maintain our NEUTRAL rating on the sector.

• Jan 2024 system loans grew 5.7% YoY or 0.3% MoM. YoY, this was driven by loans to households (+6%), as well as the finance (+13%), and manufacturing sectors (+5%), which more than offset the decline in loans to the construction (-1%), agriculture (-5%), and utilities (-15%) sector. MoM, household loans expanded slightly by 0.6%, while business loans were flattish (-0.2%) due to a decline in loans to the utilities sector (-6%). We maintain our 2024F system loans growth forecast of 4.5-5% but highlight that from the recent round of briefings, loan demand looks healthy and there could be upside risks to our forecast.

• Strong loans demand. On a three-month moving average basis, system loan applications rose by 25% YoY (-7% MoM), with strong increases in both business (+24% YoY, -14% MoM) and household (+26% YoY, -2% MoM) applications. Similarly, loan approvals surged by 36% (-9% MoM), but disbursements have been slower, increasing by only 3% YoY (-1% MoM). The MoM decline in loan applications was dragged down by the business segment (-14%), from a higher base.

• System deposits rose by 5.2% YoY (-0.1% MoM), slightly slower than the pace of loan growth. CASA growth (+5% YoY, +1% MoM) outpaced that of fixed deposits (4% YoY, flat MoM), leading to a higher CASA ratio of 31.2% in January (Dec 2023: 31.0%, Jan 2023: 31.2%), and recovering from the low of 30.3% in May 2023.

• Asset quality remains resilient. System GILs were flat YoY, but dipped by 0.5% MoM, driven by lower impaired loans for working capital purposes (-7%). This led to a marginally lower GIL ratio of 1.64% (Dec 2023: 1.65%, Jan 2023: 1.73%), while LLC picked up to 93% from 92% in the previous month.

• Other highlights. Capital ratios appear adequate – the CET-1 and total capital ratios both recorded an uptick MoM to 15.0% and 18.6%. The banking system remains liquid, with the LDR at 86%, and liquidity coverage ratio at 160%. For the SME segment, loans grew 8% YoY in Dec 2023 (+1% MoM), mostly led by the transport (+11% YoY, 2% MoM) and wholesale & retail trade sectors (+8% YoY, +1% MoM). The SME GIL ratio declined sequentially, but still remained high at 3.07% (Nov 2023: 3.12%, Dec 2022: 2.88%).

Source: RHB Securities Research - 4 Mar 2024