• Keep OVERWEIGHT; Top Picks: AMMB, Alliance Bank, CIMB, and Hong Leong Bank (HLB). System loan growth remained strong at 6% YoY in October, with positive lending indicators, while deposits growth eased to 3% YoY compared to 5% in July. Asset quality remained healthy across the board, with system GIL ratio nearing the pre-pandemic average. We maintain our rating on the sector as we think the stable outlook for Malaysian banks under our coverage (MY Banks) provides investors with a defensive shelter.

• System loans grew 6.0% YoY (+0.7% MoM) in Oct 2024, with household loans growing 6.2% YoY (+1% MoM), and business loans by 5.7% YoY (+1% MoM). Sectors that recorded the most growth include wholesale & retail trade (+8% YoY, +0% MoM) and finance (+18% YoY, +3% MoM), while sectors such as agriculture (-6% YoY, -1% MoM) and education & health (-3% YoY, +0% MoM) contracted. YTD annualised loans grew by 4.9%, slightly below our 5-5.5% forecast for 2024.

• Lending indicators. After a slower September, October saw a sequential pickup in loan applications (+0% YoY, +15% MoM) and approvals MoM (-3% YoY, +14% MoM) across both the household and business segments. On a YTD basis, loan applications and approvals grew by 3% and 2% YoY respectively, but loan disbursements lagged behind, declining by 2%. As such, we think this could lead to a pickup in loans in the final two months of the year.

• System deposits rose 3.1% YoY (+0.3% MoM), at a slower pace compared to loans growth. As a result, LDR is up to 88% from 85.7% last year. CASA (+4% YoY, -0% MoM) grew faster YoY compared to fixed deposits (+3% YoY, +0% MoM), but recorded a slight decline MoM, leading to a lower system CASA of 31.0% (Sep 2024: 31.2%, Oct 2023: 30.8%).

• Solid asset quality. System GIL fell 5% YoY (-1% MoM), with household GILs (44% of system GILs) down 6% YoY (-1% MoM) from lower mortgage GILs, while business GILs fell 5% YoY (-0% MoM) thanks to the manufacturing, agriculture, and mining sectors. System GIL ratio continued its downward trend to 1.53% (Sep 2024: 1.54%, Sep 2023: 1.70%), close to the pre-COVID19 level of 1.51%, while LLC improved MoM to 91.2% (Sep 2024: 90.8%, Oct 2023: 91.3%) – above the pre-COVID-19 LLC of 82%.

• Other highlights. Capital ratios appear adequate – CET-1 is at 14.4%, while system LDR and total capital ratios have been stable since Jan 2023 at 14- 15% and 18-19%. Elsewhere, SME loans in Sep 2024 continued its strong loans growth trajectory at +9% YoY (+1% MoM), while the SME GIL ratio has been broadly stable at 3.01% (Aug 2024: 3.07%, Sep 2023: 3.14%).

Source: RHB Securities Research - 2 Dec 2024