November-22 saw a notable reduction in system loan growth, as the effects of higher lending rates begin to take centre stage. System loans rose by +5.5%yoy (from >+6.4%yoy range in the previous 3 months), contracting by -0.1% mom. On an annualised basis, loan growth fell to +5.4%. MIDF is of the view tha loan growth should continue tapering down in 1HCY23 in the presence of less cheap liquidity. As the initial projections from the house were overly optimistic, MIDF reduces its CY2022 loan growth projections to 5.0-5.5%.
As for retail loans, it maintained a strong growth of +7.1%yoy. This translated to +0.7%mom and an annualised growth figure of +6.5%. In contrast to stable residential mortgages, hire purchase and unsecured loans did see weaker year-on year growth, though on all 3 segments saw steady growth on a sequential monthly basis. Credit card loans make up 2.0% of system loans, up +13.3%yoy. Total purchases in Malaysia by both local and foreign cardholders remained relatively stable. Business loan growth is weak – attributable to working capital segment. Business loans fell to +3.8%yoy (Annualised: +4.0%) – it contracted by -0.9%mom. The core contributor was working capital loans, which contracted by a significant -1.7%mom. Non-residential mortgages, construction and securities loans also reported weaker
System loan applications continued to decline, contracting by -5.4%mom. Contributors to the steep decline were spread out, though prime drivers were hire purchase loans, residential mortgages and working capital loans. System loan approvals remained relatively stable (-1.3%mom), as approval rates rise to 55.8%, as the reduction in business loan approval rate seen last month has been reversed.
Deposits rose by a moderate +5.9%yoy while reporting -0.5%mom growth, the first instance of negative growth since Jan-22. CASA growth continues to dwindle, reporting a +5.2%yoy, -0.3%mom growth. FD growth was more promising, reporting +5.2%yoy, +0.4%mom growth. As deposit growth continues to dwindle, L/D ratio has risen to 89.3%. CASA ratio was unchanged at 31.7%.
Impaired loans. GIL volume fell by +0.3%mom, with system GIL ratio ticking upward by +1bps mom to 1.83%. Retail
GIL was constant, while business loan GIL ratio rose by +2bps. We are not expecting system GIL to make any more
notable increases, given that banks have already begun heavily utilising overlays in the last quarter. FD rates catch up. Interest spread narrowed by -14bps mom, as deposit rates have repriced upwards. ALR rose by +12bps mom. 3-month FD rate rose by +26bps mom.
Note that at the current juncture, MIDF says it is not discounting OPR to be raised to 3.25% in 1HCY23, as the strong performance of the Malaysian economy gives leeway for further rate hikes.
MIDF maintains a POSITIVE call. While the sector must contend with diminishing tailwinds: rising deposit competition, declining CASA ratios, and sticky tech and personnel costs. Nevertheless, it said it remains optimistic about a further OPR-hike uplift to NII, improved NOII income outlook, and further overlay writebacks. Additionally, dividend yields remain attractive. Top picks for the sector remain Public Bank(BUY, TP: RM5.39) and RHB Bank (BUY, TP: RM6.94).