PETALING JAYA: Assuming month-on-month (m-o-m) loan expansion of 0.6% to 0.7% in December, the banking sector would have recorded a loan growth in the range of 5.3% to 5.4% in 2024, says CGS International (CGSI) Research.
The research firm said this is ahead of its projected sector loan growth of 4% to 5%.
It noted that loan growth stayed strong year-on-year (y-o-y) in November last year despite m-o-m deceleration.
“Although moderating from 6% y-o-y at end-October 2024, the banking industry’s loan growth stayed relatively strong at a pace of 5.8% y-o-y at end-November 2024, based on statistics for Malaysian banks released by Bank Negara.
“The m-o-m deceleration was mainly due to household loans, which recorded an expansion of 6% y-o-y at end-November 2924 versus 6.1% y-o-y at end-October 2024,” CGSI Research said in a report.
Meanwhile, the growth momentum for business loans was sustained at 5.4% at end-November 2024, unchanged from the previous month.
The research firm said the strong m-o-m expansion of 0.6% to 0.7% in the industry’s total loans in October to November had pushed up banks’ loan growth to 4.7% for the 11-month period of 2024.
According to the research firm, one main positive observation from the November banking statistics was the decline of RM320mil in the banking industry’s gross impaired loans (GIL) in October to November.
“With this, banks’ GIL ratio continued to trend down from 1.54% at end-September to 1.51% at end-November. Consequently, we think banks’ loan loss provisioning likely remained benign in the fourth quarter of 2024 (4Q24).”
For 2025, CGSI Research projects loan growth of around 5% (between 4.5% and 5.5%), which is slightly below the expected expansion of 5.3% to 5.4% in 2024.
According to the research firm, downside risk to loan growth this year could come from weaker expansion in auto loans, which showed a decelerating growth trend from 10.1% y-o-y at end-July 2024 to 8.7% y-o-y at end-November 2024.
However, this could be partly offset by a potential pick-up in business loans, underpinned by the government’s initiatives under Ekonomi Madani to boost economic growth in Malaysia.
“We reaffirm our ‘overweight’ rating on banks, premised on potential sector re-rating catalysts of an improved outlook for net interest margin or NIM and an uptrend in dividend payout ratios for most banks. Our top picks for the sector are Hong Leong Bank Bhd
, Public Bank Bhd and AMMB Holdings Bhd (AmBank).”
Meanwhile, Kenanga Research expects to see fewer negative surprises to fundamentals with previously distortive provisions and writebacks from pandemic overlays out of the picture.
One positive development would be upcoming signing of the definitive agreement for the Johor-Singapore special economic zone or SEZ, which would bolster domestic industries and foreign direct investment injections in that area.
“Pending global developments that will steer our economic trajectory, we see banks deploying varying strategies to enforce operational resiliency and sustain earnings.
“Going into 2025, we project for industry loan growth to come in at 6% and the over night policy rate to be steady at 3%.”
The research firm foresees households further loading in mortgages and hire purchases from an early Chinese New Year and Hari Raya season in 1Q25, while business loans will be driven by reinvigorated service sectors and working capital needs.
Within its coverage, Kenanga Research likes AmBank on the back of a more solid return on equity as the group focuses on stronger earnings drivers as opposed to gaining market share in less profitable segments.
Among the large-cap banks, it favours Malayan Banking Bhd as despite its leading market share, the banking group still holds better-than-industry asset quality with earnings growth expected to outpace its counterparts.
