• Keep OVERWEIGHT; Top Picks: AMMB, Alliance Bank, and CIMB. Bank Negara Malaysia's Dec 2024 banking system statistics showed steady loan growth of +5.5% YoY, a slight acceleration from the +5.3% recorded in 2023. Meanwhile, asset quality continued to improve - evidenced by declining impaired loans - although deposit growth continued to lag. We maintain our OVERWEIGHT sector rating, as the stable outlook of the Malaysia banks under our coverage (MY Banks) offer a defensive shelter amid periods of volatility.
• System loans grew 5.5% YoY (+2.0% QoQ, +0.8% MoM) in Dec 2024, which came in at the higher end of our 5-5.5% forecast. The YoY strength primarily came from household loans, which rose 6% YoY (QoQ: +2%, MoM: +1%), while non-household loans grew by a more moderate 5% YoY (QoQ: +3%, MoM: +1%). The finance (+21% YoY, +12% QoQ), wholesale & retail trade (+8% YoY, +2% QoQ) and manufacturing (+5% YoY, +3% QoQ) sectors continued to show solid momentum, while auto loans (+9% YoY, +2% QoQ) and residential mortgages (+7% YoY, +2% QoQ) were the main drivers of household loans.
• 2024 saw a slight moderation in lending indicators, as total system loan applications and approvals growth for the year eased to +3% and +1% YoY (from +9% and +11% in 2023). We think this could lead to a more moderate system loan growth in 2025, especially if the trend keeps up during the year - we anticipate loan growth for 2025 at 5% YoY. Elsewhere, we observed that the average lending rate (ALR) has been on a downtrend, with the Dec 2024 print of 5.1% implying a 2bps decline MoM (YoY: -34bps). However, several banks that we had checked with mentioned that sequential NIM compression in 4Q24 was not as severe as that in 4Q23.
• System deposits rose 3% YoY (+2% QoQ, +1% MoM), ie at a softer clip compared to system loan growth. As a result, system LDR inched up 2ppts YoY to 88% (flat vs Sep 2024). Interestingly, CASA deposits growth (+5% YoY, +3% QoQ) outpaced that of fixed deposits (FD; +4% YoY, +1% QoQ), so the system CASA ratio expanded to 31.4% (Dec 2023: 31.0%, Sep 2024: 31.2%). This follows the 10bps YoY decline in FD rates across multiple tenors, as the banks continue to manage down funding cost to preserve NIMs.
• Asset quality. Absolute GILs declined 8% YoY (QoQ: -5%, MoM: -4%), with particular decreases seen in the household sector (-7% YoY, -3% QoQ). Both the household and non-household GIL ratios eased YoY to 1.1% and 2.0% (Dec 2023: 1.2% and 2.3%). Provision buffers appear adequate, with system LLC at 91.4% (Dec 2023: 91.9%, Sep 2024: 90.8%).
• Capital ratios appear adequate. The CET-1 and total capital ratios remained stable at 14.3% and 17.8% (both relatively flat YoY). In the upcoming results briefings, we will look to gain further clarity on the banks' capital optimisation strategies - particularly with respect to the gradual implementation of Basel III reforms.

Source: RHB Research - 3 Feb 2025