• The KLFIN Index ended 2024 strongly at 19,170 points (+18% YoY), despite muted December performance, after hitting a two-decade high in August.

• Malaysia total loan growth remained steady, rising 5.8% YoY in November. Meanwhile, the banking industry’s gross impaired financing ratio (GIFR) improved to 1.51% in November (-17bps YoY, -2bps MoM).

• For 2025, we expect continued loan growth momentum of 5-6%. Additionally, we anticipate the banks’ profitability to improve with a stable OPR at 3%, supporting net interest margins through better cost-of-funds management.

• We upgrade our view on the Financials sector to OVERWEIGHT (from NEUTRAL) as we grow more optimistic on resilient loan applications projected for 2025, supported by salary hikes and higher business loan growth driven by strong private sector demand and key infrastructure projects. We maintain a BUY call on Bursa (TP: RM11.10) and a HOLD call on MBSB (TP: RM 0.80)

KLFIN Index Ended 2024 Strongly, with a Two-Decade High in August

The KLFIN Index ended 2024 strongly at 19,170 points (+18% YoY), despite muted performance in December. Notably, the index reached a two-decade high of 19,931 points in August. The strong performance was driven by 1) increased foreign investors interest in the domestic market amid concerns of a potential US recession, robust Malaysia loan growth, and improved earnings prospects for Malaysia banks, supported by a stable overnight policy rate (OPR).

Steady Loan Growth in November, up by 5.8% YoY

Malaysia’s total loans remained robust in November 2024, rising 5.8% YoY to RM2.23trn from RM2.11trn in November 2023. The growth was primarily driven by steady household loans (i.e. car loans, mortgage, and personal loans) and business loans, amid heightened economic activity. We anticipate total loan growth to range between 5-6% in 2024.

Improved Asset Quality – GIFR at 1.51% in November

The banking industry’s gross impaired financing ratio (GIFR) improved further in November, declining by 17bps YoY and 2bps MoM to 1.51 (October 2024: 1.53%, November 2023: 1.69%). Significant improvements were seen in three sectors; Mining and Quarrying (-261bps YoY), Agriculture, Forestry and Fishing (-138bps YoY), and Accommodation and Food Service (-134bps YoY).

Resilient 2025 Outlook for Financials Sector

We expect Malaysia’s total loans to grow 5-6% in 2025, despite a moderated in-house GDP forecast of 4.7%. We believe the growth will be driven by 1) increased loan applications for personal financing, mortgages, and car loans, supported by salary hikes, and 2) higher business loan growth due to strong private sector demand and key infrastructure projects. We anticipate banks’ profitability to improve with a stable OPR at 3%, enhancing net interest margins through better cost-of-funds management.

Upgrade to OVERWEIGHT on Financials Sector

We upgrade our view on the Financials sector to OVERWEIGHT (from NEUTRAL) as we grow more optimistic on resilient loan applications projected for 2025, particularly within the Household segment amid salary hiked. We maintain a BUY call on Bursa (TP: RM11.10) and a HOLD call on MBSB (TP: RM 0.80).

Source: BIMB Securities Research - 3 Jan 2025