PETALING JAYA: Banks recorded steady loan growth at 6.4% year-on-year in July, outpacing growth in deposits at 4.7%.
Asset quality remained healthy as gross impaired loans (GILs) continued to decline across most sectors.
Loans grew backed by both businesses and households.
The main drivers of household borrowing continued to be the purchases of cars and homes.
As for deposits, the growth was mostly driven by current accounts and savings accounts, while fixed deposits grew at a slower pace, said RHB Research.
The research house said it was retaining its forecast for 2024 loan growth at 5% to 5.5% for now and would continue to watch out for any development of leading indicators for lending.
“Our forecast suggests a moderation in year-on-year loan growth ahead, mainly in the fourth quarter (4Q24) when the base effect of the pickup in 4Q23 growth kicks in. Also, the annualised pace of growth in July was 4.6%,” said RHB Research
The research house maintained its “neutral” call on the sector and preference for banks with stronger earnings prospects.
Meanwhile, Hong Leong Investment Bank Research (HLIB Research) anticipated net interest margins (NIM) to hold up well in 3Q24 given selective lending strategies by banks to preserve margins and also less intense competition for fixed deposits.
It also sees asset quality continuing to be stable against a backdrop of robust economic conditions.
“In any case, we are not concerned about any weaknesses as banks are better equipped versus prior slumps; the large loan loss allowances built up over the past four years act as robust buffer to cushion any spike in GIL ratios,” the research house said.
However, the research house said it had re-rated the sector and large banks appeared to be fairly priced.
“Hence, we advocate to position into mid-size and small banks, which we feel are able to offer more favourable risk-reward opportunities.
“The banking sector has been on an absolute tear over the past month. It has re-rated near to the five-year pre-pandemic mean price-to-book ration of 1.2 times, backed by similar returns on equity output versus 2015-201919 levels of about 9%,” said HLIB Research.
It noted that foreign buying was strong thanks to robust economic conditions, good 2Q24 financial results, perceived political stability, and the rotational play to emerging markets from a looming rate cut in the United States.
The research house said it has four “buy” ratings for banks under its coverage. It said it likes RHB Bank Bhd for its attractive dividend yield, laggard-play potential and for being a KLCI index component stock and AMMB Holdings Bhd
for its larger dividend payout capacity in the near future.
Bank Islam Malaysia Bhd is liked for its compelling dividend yield and potential to benefit from the pay hike for civil servants; and Alliance Bank Malaysia Bhd for its effective execution of strategy, strong environmental, social and governance initiatives, and elevated loan loss coverage.
