System loans growth for the banking sector remained stable, increasing 4.5% year-on-year, but was flattish month-on-month as the Aidil Fitri festivities saw a slight increase in household loans offset by a decrease in the non-household segment, said RHB Research in the recent Malaysia Sector Update Report.
Deposits rose 6.4% year-on-year. Consequently, RHB retains their Overweight sector call. Despite topline pressure from margins and moderating loan growth, RHB believes banks have sufficient levers in place to support earnings and dividend growth.
“April system loans rose 4.5% year-on-year, mostly led by households. Non-household were driven by the transport & communications and finance, insurance & biz sectors, while loans for manufacturing contracted 3.8% year-on-year,” said RHB.
By purpose, the biggest drivers for system loans growth were residential property and transport vehicles, while working capital slowed down sequentially by 0.9%.
On a 3-month moving average basis, loan applications of RM115 billion improved 5% month-on-month, despite the average lending rate increasing 7 basis points to 5.26% from 5.19% in Mar 2023. Loan approvals picked up, at 5.7% month-on-month , but loan disbursements saw a 2.0% decline month-on-month.
“Overall, we believe lending indicators remain encouraging,” said RHB.
System deposits grew 6.4% year-on-year, outpacing loans growth, but declined marginally by 0.4% month-on-month. Fixed deposits continued to outpace current account savings account (CASA), with CASA ratio dipping to 30.4%.
Feedback from some banks’ management teams suggest that the deposit competition has seen some easing post quarter one 2023. Assuming peak deposit campaign rates have passed, and coupled with May’s Overnight Policy Rate hike, sequential net interest margin pressure in the coming quarters would not be as severe as that of quarter one 2023.
System gross impaired loans ticked up 2.2% month-on-month, mainly from the household sector from a possible combination of festivities and customers exiting repayment assistance programmes, while non-household gross impaired loans remained fairly stable.
This led to a marginal increase in the gross impaired loans ratio by 4 basis points month-on-month to 1.78%. Provisions are still decent, with system loan life coverage at 94% and this should provide some buffer to address potential asset quality weakness in the near term.
The banking system remains liquid and well capitalised with a loan to deposit ratio of 85.3% and common equity tier one ratio of 14.8%. In March, SME loans increased by 2.3% year-on-year as most of the growth was driven by wholesale & retail and finance.
