2022 loan growth ended up slightly higher than analysts’ expectations, December saw system loan growth remains at relatively stable levels, following Nov-22’s sharp contraction. System loans ended up rising by +5.7%yoy and +0.7%mom which was slightly higher than the projection of +5.0-5.5%. With lending rates having nearly normalised and liquidity no longer as cheap, the 2023 system loan forecast is a muted 4.5-5.0%.
As for retail loans, they saw stable growth of +6.8%yoy and +0.7%mom. The core drivers of residential mortgages, hire purchase and unsecured loans saw steady growth on a sequential month basis.
Credit card loans make up 2.0% of system loans, up by a strong +3.6%mom, likely bolstered by heightened spending during the festive period. Business loan growth resumes positive momentum. Business loans grew by a steady +0.7%mom – following Nov-22’s contraction of -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 seem to have rebounded from last
month’s blip.
Leading indicators however continue on a downward trajectory. System loan applications continued to decline, contracting by -12%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 also saw a steep decline of (-18%mom), as approval rates fell to 52% (Nov-22: 56%). Nov-22 SME approval rates, also fell to 48% (Oct-22: 58%).
On the bright side, fixed deposit campaigns are in full swing. System deposits remained stable, with a growth of +5.9%yoy while reporting notable +1.0%mom growth. While CASA continued to contract at -0.7%mom, FDs saw a huge jump, reporting whopping +1.8%mom growth. As expected, banks are clamouring for funding: an early CNY and changes to SRR requirements have exacerbated deposit competition.
Banks saw heavy write-offs, especially in construction. GIL volume fell by -5.1%mom, with the system GIL ratio falling by -11bps mom to 1.72%. While the retail GIL ratio only saw an uptick of +1bps, the business loan GIL ratio fell by -12bps. This was largely due to heavy write-offs in construction, with its GIL ratio falling by -327bps to 4.39%. Banks have been guiding for further asset quality issues in 1QCY23, so expect this trend to continue.
FD rates uplift is muted. Interest spread widened by +16bps mom, as the ALR hike was much higher than FD rate increase. ALR rose by +21bps mom. 3-month FD rate rose by +5bps mom. Observing the quarters’ figures, interest spread should peak in 4QCY22, before declining steadily following the repricing of FD rates.
MIDF says the sector must contend with several headwinds in the coming quarters: most notably asset quality issues stemming from RA loan graduation. Additional issues include higher-tech spending, cost inflation, and liquidity pricing. While the sector no longer remains as attractive, we look to possible further OPR-hike uplifts to NII, improved NOII
outlook and attractive dividend yields. Several banking counters have also repriced lower following BNM’s decision to keep
the OPR at 2.75%.
The house views this as an opportunity to accumulate on weakness, as the likelihood of BNM raising OPR by at
least +25bps in 1HCY23 remains intact. Top picks for the sector remain Public Bank (BUY, TP: RM5.39) and RHB
Bank (BUY, TP: RM6.94)
