• Top Picks: CIMB, AMMB, Hong Leong Bank, Alliance Bank Malaysia, and Public Bank. System loan growth remained strong at 6% YoY in Apr 2024, with encouraging lending indicators. Other highlights include a slight MoM drop in the CASA ratio, perhaps due to the Aidil Fitri celebrations, while asset quality remained resilient. We remain NEUTRAL on the sector, as we expect to see normalised earnings growth going forward.

• System loans grew 6% YoY (flat MoM) in April, driven by the household (+6% YoY), wholesale & retail (+10%), and finance (+13%) segments. The growth of big-ticket consumer loans such as that for hire purchase (+10%) and residential property (+8%) remained above the industry average. This was brought offset by a contraction in loans for buying securities (-10%) and a slower growth in loans for working capital (+5%). MoM loan growth was flat as the growth in household loans (+0.4%) was offset by decreases in the majority of other loan segments.

• Strong lending indicators. Apr 2024 loan applications amounted to MYR117bn (+14% YoY, flat MoM), with the growth driven by a higher increase in the business segment (+16% YoY, +2% MoM), while household loan applications grew by 12% YoY (-1% MoM). On a cumulative basis, system loan applications in 4M24 rose by 4% YoY. The increase in loan disbursements in April, however, were softer at just 2% YoY (+6% MoM), being dragged down by the business segment (flat YoY, -5% MoM). That said, it may pick up later in the year, with the high growth in loan applications and approvals (+13% YoY, -2% MoM). On the back of the decent growth achieved so far, coupled with healthy loan leading indicators, we raise our 2024F system loans growth to 5-5.5% YoY from 4.5-5%.

• System deposits grew 5% YoY (-1% MoM), as fixed deposits increased by 3% YoY, and CASA grew by a faster 7% YoY. The CASA ratio, however, dropped to 30.8% in Apr from 31.1% in Mar (Apr 2023: 30.4%) as CASA fell 1% MoM – which could be attributed to the festive season as depositors withdrew funds for higher spending.

• Asset quality remains stable. System GILs increased 0.7% MoM (-0.4% YoY), mostly from an increase in transport & communication GILs (+15% MoM, +34% YoY), while the household sector GIL was flat MoM (+3% YoY). All in all, the system GIL ratio ticked up 1bps MoM to 1.63% (Apr 2023: 1.74%), but banks remain well-covered, with a healthy system LLC of 91.8% (Dec 2023: 92.1%, Apr 2023: 96.6%).

• Other highlights. Capital ratios appear adequate, with CET-1 remaining stable at 15%, and the total capital ratio at 18%. Liquidity should be ample, too, with the loan-to deposit ratio at 86% and the liquidity coverage ratio at 152%.

Source: RHB Securities Research - 4 Jun 2024