Kenanga Investment Bank (Kenanga) Sector Update today (Mac 1) said January 2024’s system loans increased by 5.7%, within their 5.5%-6.0% expectation for the time being.
Household spending continued to be resilient while loan demand from the business front may be slightly fragmented. Industry GIL stayed stable at 1.64% and is likely to sustain barring unforeseen macro-economic developments.
Deposits meanwhile grew by 5.2% with CASA readings also coming in flattish and may likely see better acquisitions as banks are said to be toning down on their fixed deposit products.
Meanwhile, Kenanga anticipates the industry OPR to be unchanged at 3% throughout CY24, with any change likely to have a downside bias to reflect the tone set by regional monetary policies.
Kenanga maintains their OVERWEIGHT call on the sector, with its resilience to be emboldened by better economic prospects fuelled by infrastructure projects and investments.
For 1QCY24, Kenanga’s highlights were: (i) MAYBANK (OP; TP: RM11.00) for its market leader positioning likely to tap into the abovementioned economic drivers, and (ii) ABMB (OP; TP: RM4.30) as a small cap favourite given its largely comparable fundamentals which beats certain large caps.
Off to a good start
In Jan 2024, system loans grew by 5.7% YoY which is within their projected 5.5%-6.0% target for CY24. Residential loans and hire purchase continued to make up most of household (+6.1%) loan’s growth while the credit card segment also did see a strong increase, likely for Chinese New Year consumption.
On the other hand, business (+5.1%) loans were chiefly supported by the financial services and wholesale sectors.
On a MoM basis, households (+0.6%) registered a similar trend but businesses tipped (-0.2%) possibly tied to lower overall output during the season.
More sign-ups
Kenanga note a 40% YoY increase in applications across the board, which could possibly be due to Hari Raya seasons just around the corner and hence calling for prospective borrowers to prepare their capital needs.
That said, the numbers were much more subdued on a MoM basis (-1%) due to higher applications being registered in Dec 2023 to meet early-year demand (refer to Tables 4−5 for breakdown of system loan applications).
Steady state GIL
Industry GIL remained stable at 1.64% (Dec 2023: 1.65%, Jan 2023: 1.73%) as Kenanga continues to believe most troubled accounts would have already defaulted during the prior year.
Banks are progressively topping up their provisions amidst forward looking concerns which likely stemmed from new tax implementations and subsidy rationalisation.
This resulted in loan loss coverage to increase to 93.0% (Dec 2023: 92.0%, Jan 2023: 97.9%). Following channel checks, several banks are looking to reallocate previously unutilised management overlays to cushion existing trouble accounts, which could also explain the slow and progressive rise in LLC.
Cash still in demand
System deposits grew by 5.2% YoY – Going into CY23, Kenanga anticipates deposits could close similar to industry loans growth numbers and hence they project a similar 5.5%-6.0% growth expectation for deposits.
There was a slight decline MoM (-0.1%) but this could likely be explained by withdrawals to support seasonal spending. Kenanga also noted that CASA is relatively unchanged at 28.7% (Dec 2023: 28.5%, Jan 2023: 28.8%) as bankers may be keeping cash piles liquid.
Kenanga maintain an OVERWEIGHT on the banking sector as they believe the sector will continue to show resilience based on a stronger economic backbone, with CY24 expected to be supported by the roll-out of public infrastructure projects with foreign investors renewing interest.
On the flipside, household spending may be pinched by tax reforms and the progressive implementation of targeted fuel subsidies. Kenanga expects BNM to be cognisant of these factors and may keep OPR stable throughout CY24 to keep overall activities intact, with higher possibility of downside adjustment in line with the anticipated softening of monetary policies from leading markets.
Kenanga sector top picks for 1QCY24 is MAYBANK for its leading bank position in terms of market share, where MAYBANK could also be viewed as the best beneficiary for stronger economic activity.
As for small cap banks, ABMB remains Kenanga’s favourite for its solid fundamentals which are comparable to its large cap peers. Additionally, its leading CASA level may provide the group nimbleness to balance its interest margins with market share acquisition strategies.
