RHB Investment Bank Bhd (RHB Research) has maintained its OVERWEIGHT rating on the banking sector, citing healthy loan growth and stable asset quality. The research house's top picks include AMMB Holdings Bhd, Alliance Bank Malaysia Bhd, CIMB Group Holdings Bhd and Hong Leong Bank Bhd, which it believes provides a defensive investment option amid an optimistic outlook for the sector.
Bank Negara Malaysia's statistics for November 2024 highlighted a 5.8% year-on-year (YoY) growth in system loans, outperforming deposit growth of 3.6%. Household loans rose by 6.1% YoY, while business loans grew 5.4% YoY. Strong performances were noted in sectors such as finance (17% YoY) and wholesale & retail (9% YoY), which offset declines in agriculture (5% YoY), and education and health (3% YoY). Year-to-date (YTD), loans have grown at an annualised rate of 5.1%, aligning with RHB Research's forecast of 5%-5.5% growth for 2024.
Despite slower system loan applications and approvals on a month-on-month (MoM) basis in November, loan disbursements showed a 1% MoM increase, suggesting a potential uptick in lending activity in the coming months. YTD, loan applications and approvals rose by 4% and 3% YoY, respectively.
Deposits grew at a slower pace of 3.6% YoY, with a notable increase in current account savings accounts (CASA) at 5% YoY compared to fixed deposits at 4% YoY. This resulted in a higher loan-to-deposit ratio of 88%, up from 86% a year ago, and a CASA ratio of 31.3%, reflecting improved liquidity within the system.
Asset quality remained robust, with a system gross impaired loan (GIL) ratio declining to 1.51% in November 2024 from 1.69% the previous year. Improvements were seen in the manufacturing (13% YoY), mining (18% YoY), and education and health (13% YoY) sectors. Household GILs also fell by 6% YoY, contributing to the healthy overall credit environment.
RHB Research noted that capital adequacy ratios remained stable, with the common equity tier-1 ratio and total capital ratio standing at 14.4% and 17.9%, respectively. SME loans also showed resilience, with an 8% YoY growth and a stable GIL ratio of 2.99%.
The research house believes the banking sector's fundamentals remain solid, driven by robust loan growth and healthy asset quality. However, they caution that the loan growth trajectory will depend on the broader economic environment and lending activity in the coming months.
