• Top Picks (preference order): CIMB, AMMB, Hong Leong Bank, and Alliance Bank Malaysia. Bank Negara Malaysia’s (BNM) banking statistics for Feb 2024 showed healthy loans growth at 5.8% while deposits rose 4% YoY. The CASA ratio stayed at 31.2%, and asset quality remains healthy with system GILs ratio flat at 1.64% despite slightly higher GILs in Feb. We maintain our NEUTRAL rating on the sector amid moderating earnings growth prospects.

• System loans grew 5.8% YoY (+0.4% MoM) in Feb, driven by household loans which grew 6.2% YoY, while business loans were up 5.3% YoY. Growth appears broad-based, most notably for the purchase of cars (+10.5% YoY, +0.7% MoM), and mortgages (+7.5% YoY, +0.5% MoM), but loans for the purchase of securities dropped 11.5% YoY (-1.1% MoM). By sectors, the increase in loans was driven by wholesale & retail (+8.6% YoY, +1.6% MoM) and finance (+13.1% YoY, +1.7% MoM). Despite the positive start to the year, we keep to our 2024 system loans growth forecast of 4.5-5% for now.

• Mixed lending indicators. On a three-month moving average basis (3MMA), loan applications growth stood at 17% YoY (-5% MoM), loan approvals at 27% YoY (-9% MoM), and loan disbursements at 1% YoY (-5% MoM). The strong growth in applications and approvals YoY was led by the business segment, which grew 20% and 30%. MoM, lending indicators were softer for both households and businesses, but this could be attributed to the shorter working month and Lunar New Year festivities.

• System deposits rose 4% YoY, lower than the 5.2% recorded in Jan. YoY, CASA grew at a slighter faster rate than FD (4.6% vs 4.3%), but MoM, FD picked up by 1.1% to CASA’s 0.5%, resulting in stable CASA ratio at 31.2% (Jan 2024: 31.2%, Feb 2023: 31%).

• Healthy asset quality. System GILs ticked up in Feb 2024 by 0.7% YoY (0.8% MoM) as household GILs increased 6.4% YoY (1.7% MoM), while business GILs declined 3.6% YoY (flat MoM). The system GIL ratio remained unchanged at 1.64% and LLC is stable at 92%. As banks are holding on to their capital buffers, we think this should keep credit costs under control and cushion against any GIL upticks.

• Other highlights. The banking system’s capital buffers remain sufficient – CET-1 is at 14.6%, system LDR at 86%, and liquidity coverage ratio at 154%. For the SME segment, loans grew 8% YoY in Jan (flat MoM), mostly led by utilities (+15% YoY, +1% MoM), transport (+11% YoY, +1% MoM), and finance (+9% YoY, flat MoM) sectors. The SME GIL ratio continued to decline, down to 2.98% in Jan from a high of 3.17% in Aug 2023.

Source: RHB Securities Research - 2 Apr 2024