Analysts maintained OVERWEIGHT call for the banking sector, with projected loan growth range of between 4% and 5% in 2024 (CY24) premised upon a greener economic landscape.
Kenanga Research projected loan growth of between 4.5 and 5% in CY24, which is slightly higher than its CY23 assumptions of between 4 and 4.5%.
In its Sector Update today (Jan 2), Kenanga said this ties in with the sector’s in-house GDP growth of 4.9% for CY24.
“The system loans growth in October 2023 came in at 4%. Household loans remained the key driver of overall loans performance as business loans had stayed limped with the year’s operating landscape yet to paint favourable conditions for businesses to aggressively expand.
“This could also be attributed to uncertainties of August 2023’s state election outcome,” it said.
The research house expected that loan growth for the year to continue to be supported by affordable homes which also appear to be the preference for developers within their new launch pipelines.
“That said, we opine secondary market transactions could also see some pick-up as banks may now be more competitive with the margin spread for newly onboarded mortgages.
“On the business front, fewer uncertainties with regards to domestic economic policies and interest rates may spur business to once again focus on expanding.
“Meanwhile, a weaker domestic currency may be a booster for exporters and could drive spending from foreign tourists, possibly stimulating growth in these areas,” it said.
Similarly, CGS-CIMB also reaffirmed OVERWEIGHT call on banks, supported by the sector’s strong dividend yield of 5.3% for CY24F, in addition to CY24F P/E of 9.7x to be below the 5-year historical average of 10x.
The research house said the bank’s loan growth this year is likely hit its 2023 forecast of between 4 and 5%.
“The banking industry’s total loans expanded by 4.2% in 11M23 (from end-Dec 22 to end-Nov 23). As such, we believe our projected 2023F loan growth of 4-5% was likely met, as we do not expect the industry’s total loans to have contracted mom in Dec 23F.
“We are positive on the strong recovery in the banking industry’s loan growth from 4% year-on-year (YoY) at end-Oct 23 to 4.9% YoY at end-Nov 23.
“The improvement mainly came from the business loan segment, which grew at a stronger pace of 2.6% year-on-year (YoY) at end-Nov 23 compared to an increase of 1.1% YoY at end-Oct 23.
“Meanwhile, the growth momentum for household loans inched up from 5.6% YoY at end-Oct 23 to 5.7% YoY at end-Nov 23, primarily supported by the strong expansion of financing for purchases of big-ticket items (for residential mortgages and auto loans).”
For 2024, CGS-CIMB forecasted similar loan growth of between 4 and 5% on the back of business loan growth recovery
“Although we expect a slowdown in 2024F auto loan growth (from more than 9% in 2023F to the low single-digit rates in 2024F), we are still projecting another 4-5% loan growth for banks in 2024F.
“(This is because it reckoned) business loan growth would recover to above 3%, on the back of our higher projected GDP growth of 4.6% in 2024F versus 4% in 2023F,” it added.
CGS-CIMB is also encouraged to note that the industry’s gross impaired loans (GIL) declined month-on-month (MoM) for the third consecutive month in Nov 23.
“The GIL contracted by RM131.3 million MoM in Nov 23, following MoM declines of RM172.8 million in Oct 23 and RM972.5 million in September 23.
“Conversely, total provisions rose by RM442.3 million MoM in Nov 23, signifying potential quarter-on-quarter (QoQ) increases in banks’ loan loss provisioning (LLP) in 4Q23F,” it said.
Meanwhile, Kenanga predicted that OPR could remained stable at 3% throughout the year, which may lead to mixed outcome, with more optimised product rates for consumers but also as a measure to keep inflation in check.
“(The anticipated stagnant OPR) is premised on prolonged containment of inflationary pressures with a weak ringgit exaggerating imports. This may be further stirred by the pending subsidy rationalisation and to a lesser extent, the implementation of luxury taxes.
“On the flipside, the likelihood for OPR cuts could stem from the materialisation of a recession in foreign markets, namely US markets.”
Kenanga said digital banks are ready to prowl next year.
Closing in on Bank Negara Malaysia’s (BNM) deadline of April 2024, GX Bank was the first to launch its digital banking platform with only deposit-based functionality for the time being.
“”We opine borrowing facilities would be introduced over time when its user database establishes a certain maturity where they may more effectively access credit risks. The platform features a tie-in with the Grab superapp which aid in its user acquisition.
“While they do appear to offer highly attractive deposit rates at daily rest, we believe it may not be a significant competitor to traditional players as digital banks are still restrained by an asset cap of RM3 billion during their 3 years-minimum foundational phase.
“Still, further observation is required to identify differentiating strengths that digital banks may have in its lending products.”
Most digital banks are expected to be launched soon, Kenanga added.
“For now, we do not anticipate meaningful pressures from here to traditional banks albeit they will likely capture the attention of consumers with its high-yielding deposits structure,” it added.
Overall, Kenanga believe the banking sector’s resilience will continue to be relevant to investors, especially with more prominent recessionary concerns seen in key regional markets.
“Domestically, we see asset quality controls to remain tight, governed by BNM’s strict requirements and prudent management by the banks which most still maintain some level of management overlays.
“Meanwhile, liquidity is expected to be sufficient as the focus on building their respective loans book and deposits book appear to be equal. At current price points, banking dividend yields still lead with 6% to 7% possibly being offered,” it said.
For 1QCY24’s top picks, Kenanga opted to focus on high growth merit names which could see both near-term and long-term interest for investors, namely CIMB Group Holdings Bhd (CIMB) OP; TP: RM6.30) for its strengthening regional portfolio which could include profit contributions from certain assets; AMMB Holding Bhd (AMBANK) (OP; TP: RM4.80) for its strengthening books and possible positive near-term reaction from upcoming tax credits and Alliance Bank Malaysia Bhd (ABMB) (OP; TP: RM4.30) for its leading yet sustainable fundamentals which outpace certain larger-cap names, despite being the smallest listed bank.
On the other hand, CGS-CIMB’s top picks for the sector are Hong Leong Bank Bhd (ADD, TP RM26.30, RM18.90) as it offers the best of both
worlds in terms of defensiveness against credit risks (as it has one of the lowest GIL ratios in the sector) and growth prospects (from above-industry loan growth and swift expansion of associate contribution from Bank of Chengdu); Public Bank Bhd (ADD, TP RM5.25, RM4.29) as it expects potential write-backs in management overlay (which totalled RM1.8 billion at end-Sept 23) and possible increase in dividend payout ratio close, and RHB Bank (ADD, TP RM6.70, RM5.45 close) due to its attractive CY24F dividend yield of 6.9% and CY24F P/E of 7.3x.
