KUALA LUMPUR (Feb 2): Malaysia’s banking system’s 5.3% loan growth as at December 2023 beat expectations of the financial fraternity, but analysts noticed weaknesses brewing from household applications for more borrowings.
Should such a trend persist, analysts believe that business loan growth should provide some cushioning to the slowing momentum from households this year, given the government’s gradual roll-out of big-ticket public infrastructure projects.
“It's worth noting that we see a decline in loan applications in other core drivers, such as the mortgage, hire purchase and working capital categories,” said MIDF Research in a note on Friday.
“We worry that if this trend continues, we could see a slowdown in 2024 loan growth, though banks seem to be relying on government initiatives and large-scale infrastructure projects to prop up loan growth in the second half of 2024,” it added.
MIDF maintained its “positive” rating for the banking sector, forecasting 4.5% to 5% loan growth for 2024, with its top picks being CIMB Group Holdings Bhd and Alliance Bank Malaysia Bhd.
The research house said 2023 loan growth saw last-minute boost, blowing past its 4.5%-5% expectations.
Although the usual retail drivers like mortgages, hire purchases and personal loans remained steady, MIDF said business loans had an exceptional month in December, likely resulting from further post-election drawdowns.
CGS-CIMB also projected a slower loan growth of 4% to 5% in 2024, noting a potential slowdown in automotive loan growth from 9.7% in 2023 to low single-digit rates this year, on the back of expected weaker car sales.
The research house also foresees benign loan loss provision by the banking system in the fourth quarter of 2023, expecting that it would be close to, or even lower than the RM1.46 billion in previous corresponding quarter.
“This is deduced from the decline of RM503.7 million (-1.5% quarter-on-quarter) in the total provision of the banking industry in the fourth quarter of 2023,” it said.
CGS-CIMB reaffirmed its “overweight” rating for the banking sector, underpinned by a strong dividend yield of 5.1% estimated for 2024, with top picks being Hong Leong Bank Bhd, Public Bank Bhd and RHB Bank Bhd.
RHB Research also expects business loans to keep their strong momentum going into 2024, while the household segment could take the back seat due to the higher base effect.
The research house expects system loans to grow at 4.5% to 5%, but maintained its “neutral” rating for the sector, with CIMB, AMMB Holdings Bhd, Hong Leong Bank and Alliance Bank as its top picks.
“While a positive macroeconomic backdrop could lend support to banking stocks’ performance this year, we expect the sector’s earnings to moderate to growth [of 6% year-on-year in 2024]. Hence, we do not see meaningful sector outperformance this year,” said RHB.