Malaysia’s Banking Sector has seen an easing of the industry’s loan growth from 4.4% yoy at end-Sep 23 to 4% yoy at end-Oct 23.
CGSCIMB’s Sector Note today (Dec 4) cited the sector is on track to achieve their projected 4-5% growth for CY23F, amid a gross impaired loan (GIL) ratio decline from 1.72% at end-Sep 23 to 1.7% at end-Oct 23 while total provision fell by 0.4% mom in Oct 23.
CGSCIMB reiterates an Overweight call on banks, premised on potential write-backs in management overlay and increase in dividend payout ratios.
The research house said a slowdown in loan growth but on track to meet our 2024 projection the industry’s loan growth pulled back from 4.4% yoy at end-Sep 23 to an expansion of 4% yoy at end-Oct 23. The slowdown mainly came from the business loans segment which expanded by 1% yoy at end-Oct 23, compared to growth of 1.6% yoy at end-Sep 23.
Conversely, household loan growth picked up from 5.6% yoy at end-Sep 23 to 5.8% yoy at end-Oct 23. CGSCIMB thinks the banking industry is on track to achieve their projected loan growth of 4-5% for 2023, as the industry’s total loans advanced by 3.4% in 10M23 (from end-Dec 22 to Oct 23) and they expect banks to record loan growth of at least 0.3% mom in Nov 2 and Dec 23, supported by robust leading loan indicators.
Robust leading loan indicators
Leading loan indicators were robust in Oct 23 with growth of 25.8% yoy in loan applications and 19% yoy in loan approvals. The key catalysts were double-digit (20-30%) yoy growth in the applications and approvals for both residential mortgages and auto loans.
This would help to support banks’ loan growth in the next 2-3 months.
Keeping a rein on GIL ratio
CGSCIMB are encouraged to note that the industry’s GIL ratio continued to improve from 1.72% at end-Sep 23 to 1.7% at end-Oct 23, even lower than the level of 1.72% at end-Dec 22 (which reflects an improvement in 10M23 relative to our expectation for a deterioration).
Based on this, they see minimal risks for the banking industry’s GIL ratio to surpass our end2023 projection of 2%. The total provision for the industry also fell, by RM121.6m mom or 0.4% mom in Oct 23, signifying stable or even lower credit risks for banks.
Reaffirm Overweight on banks
CGSCIMB reaffirm their Overweight call on banks, supported by strong dividend yield of 5.3% for CY24F. Re-rating catalysts would be the potential write-back in management overlay and an increase in dividend payout ratio as more banks are embarking on capital-management initiatives.
Potential downside risks would be a material deterioration in loan growth and asset quality. CGSCIMB picks for the sector are RHB Bank, Hong Leong Bank and Public Bank.
4.6% industry loan growth forecast for 2024E
The drag on the Malaysia Banking sector’s non-HH loan front would imply that industry loan growth could fall short of Maybank Investment Bank (Maybank IB) forecast of 4.6% for the year.
On expectations of faster GDP growth in 2024E, Maybank IB maintains their 2024E industry loan growth forecast of 4.6%. Positively, the slide in CASA appears to be contained, while asset quality is still benign.
Maybank IB maintains a POSITIVE on the sector, with BUYs on CIMB, PBK, AMMB, HLBK, HLFG and ABMB.
Loan applications expand for second consecutive month
Industry loans growth slowed to just 4.0% YoY in Oct 2023 from 4.3% YoY in Sep 2023. While household (HH) loan growth held up and improved from 5.6% YoY in Sep 2023 to 5.8% YoY in Oct 2023, the drag was from non-HH loan growth, which slowed even further to 1.5% YoY from 2.6% YoY, as repayments outpaced disbursements.
Loan applications expanded at a double-digit pace of 11.4% YoY in Sep 2023 and 25.8% YoY in Oct 2023. In the HH segment, residential property loan applications rose 19% YoY after having contracted over the previous four consecutive months.
Loan applications rose YoY across all consumer loan segments except for credit cards. Construction and working capital loan applications jumped 29% and 11.5% YoY respectively
CASA turns the corner
Deposit growth improved slightly to 2.8% YoY in Oct 2023 from 2.4% YoY in Sep 2023, still lagging behind loan growth. Having contracted YoY over the previous nine consecutive months, CASA finally eked out a very small 0.1% YoY growth in October, finally turning the corner.
The industry’s CASA ratio was 29.3% end-Oct 2023. This compares against a pre-COVID CASA ratio of 26.5% end-Dec 2019 as well as a peak CASA ratio of 32.9% in Apr 2022.
Asset quality still well behaved
Impaired loans continued to rise moderately in absolute terms, up 3.4% YTD. Nevertheless, the industry’s gross impaired loans (GIL) ratio improved to 1.70% in Oct 2023 from 1.72% in Sep 2023. This compares to a pre-COVID ratio of 1.51% end-Dec 2019.
