The banking sector saw its loan growth continuing to weaken, Jan-23 saw a sharp drop in system loan growth, falling to +4.9%yoy, contracting -0.2%mom. The trend is expected to persist – multiple banks have offered lowered guidance in CY23, citing higher COF capping funding necessary for loans.
Retail loans are flattish, maintaining their strong growth of +6.8%yoy, +0.5%mom. MIDF says there were no notable lapses in core drivers of residential mortgages, hire purchase – though unsecured loans did show slightly muted sequential-month growth. Credit card loans continued their solid momentum, reporting +14%yoy growth. Credit card purchases did see some normalisation from high base effects of heightened December spending. Business loans show sharp fall off. Business loans reported muted +2.9%yoy growth, contracting by -0.9%mom. Loans for working capital and securities saw sharp contractions in growth, narrowing -1.1%mom and -2.4%mom respectively.’
Leading indicators continue downward trajectory. Both 3MA applications and approvals fell by -8.6%mom and -10.9%mom
respectively. Approval rates fell to 48.9%, below the ~50% range for the first time since Jul-22. Contributors to the steep decline were spread out.
FD demand pushes deposits upwards. System deposits rose by a strong +7%yoy, reporting +0.3%mom growth. CASA and FD reported sequential-month contractions – note that while conventional FDs reported good growth, it was pulled by weaker Islamic FD performance. MIDF believes the contractions were likely due to BNM’s decision to maintain the current OPR level – dissuading potential FD placers from carrying out their intended placement. Both L/D and CASA ratios remain relatively stable at 89.4% and 31.2% respectively.
GIL volume ticks upward by +0.4%mom, much in line with numerous banks’ guidance. Recall a massive write-off in construction GILs in the previous month (likely for window-dressing purposes). System group GIL ratio ticks upward by +1bps mom to 1.73%. Interest rate widens. Interest spread widens by +9bps mom. ALR rose by +4bps mom, while 3-mth FD rate narrowed by -5bps mom.
MIDF is taking a POSITIVE stance on the sector despite the Banks’ conservative CY23 guidance reflecting a tougher year ahead, with NIM compression as the primary culprit. Nevertheless, MIDF believes fears are overblown – NCC guidance is overly conservative (most do not factor in overlay writebacks), fee income recovery is inbound, and from what was suggested deposit competition has alleviated slightly in recent weeks. Valuations remain attractive, following negative repricing in recent months – so do dividend yields.
