In June 2024,the Bankig sector's system loans grew by 6.4% YoY. For the time being, Kenanga said it deems this to be still within projected 5.5%-6.0% target for CY24 on possible easing stemmed by inflation from fuel subsidy rationalisation.

Household loans maintained its growth levels at 6.4% with more traction from transport vehicles and credit cards while business loans came in similar at 6.4% growth with service industries supporting the largest increments. This was more prevalent on a MoM basis which lifted business accounts by 1.3% while households only gained 0.5% MoM. The house believes this could be due to SMEs and corporates making up for the slower festive cluttered months of the year and are now more aggressively loading up on capital.
Loan applications likely to pause. June 2024 applications increased by 2% YoY but solely on the back of more business loan
applications as households appear to be flattish. Kenanga adds that it could tie this to the abovementioned strength in service sectors, it notes that application readings declined by 12% MoM which could indicate that past levels could have been a bottleneck, supporting expectation of possible easing in the coming months.

More green in GIL numbers. Industry GIL improved slightly to 1.60% (May 2024: 1.63%, June 2023: 1.76%) as the house believes repayment habits have normalised post-festive considerations. There also appears to be an increase in industry loan loss coverage to 91.7% (May 2024: 90.8%, June 2023: 91.8%) from reversals of non-performing loans acting to overstate the level of provisions required.

CASA relatively unchanged. June 2024 system deposits grew by 4.9% YoY but was flattish MoM as spending requirements
had likely remained moderate. The house also noted that is saw CASA levels remaining stable at 28.6% (May 2024: 28.5%, June 2023: 28.2%) amidst ongoing competition on fixed deposit products likely keeping depositors sticky, albeit on possibly lower yields as compared to prior periods. With loans growth continuing to lead, industry loans-to-deposits ratio came in at 86.8% during the month (May 2024: 86.1%, June 2023: 85.5%).

Maintain OVERWEIGHT on the banking sector. Market tailwinds, such as ongoing loan growth and GDP improvement along
with better margin retention, are anticipated to continue overshadowing industry headwinds like inflationary pressures and a
weaker MYR. Kenanga believes this will likely result in fewer challenges to the sector's resilience. The sector remains appealing due to attractive dividend yields (6%-7%) on most stocks, coupled with lower inherent sector volatility compared to other industries.

Significant share price movements have been observed with the influx of foreign investors aiming to acquire major sector stocks.

Sector top picks for 3QCY24 include CIMB which has been able to reach new grounds in its ROE at c.11% which the group
looks to sustain into the long term thanks to strengthening presence in both home and regional markets. Additionally, its dividend yield is creeping well into the mid-6% levels at current price points, which is the highest amongst the top three banks.
RHBBANK is also favoured for its dividends which we project to be the leader (7%-8%) amongst its peers. Meanwhile, its
associate Boost Bank may soon enter the public domain which could garner greater interest in the near-term.

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.