PETALING JAYA: Analysts are projecting the banking sector to record loan growth of between 5.5% and 6% for this year, amid downside risks.
TA Research said it is maintaining the 2024 loan-growth forecast at 5.8%, underpinned by consumer and business loan growth of 5.9% and 5.6%, respectively.
“Nevertheless, we reiterate our ‘neutral’ call on the sector due to several potential downside risks to the sector’s earnings.
“These include the underlying fears of a deterioration in asset quality due to significant external shocks, such as a broader regional conflict in the Middle East that could result in a substantial increase in inflationary pressures, potential softer contributions from overseas operations and sustained elevation in overhead expenses,” the research house said.
UOB Kay Hian Research (UOBKH Research) said it is maintaining a 2024 loan growth assumption of 5.5%-6%.
The research house said loan growth of 5.8% for February this year remains broadly within its full-year 2024 estimate of 5.5%-6%.
However, the brokerage said leading loan-growth indicators weakened in February, with loan applications declining by 11.4% year-on-year (y-o-y), compared with January’s 39.9% increase, and loan approvals dropping by 16.8% y-o-y against January’s 39.6% increase.
Loan growth remained relatively stable at 5.8% y-o-y in February, slightly surpassing January’s 5.7%.
The growth was driven by increases in both the household and business segments, which saw rises of 6.2% (compared with January’s 6.1%) and 5.3% (compared to January’s 5.2%), respectively.
Within the household segment, all sub-segments demonstrated resilient performance. Meanwhile, in the business segment, the expansion was primarily propelled by working capital.
Deposit growth tapered to 4% y-o-y against January’s 5.2%, given slower growth in foreign currency deposits. Overall, February 2024’s loan-to-deposit ratio stayed firm month-on-month (m-o-m) at 86% (versus February’s 2018’s peak of 89%.
TA Research said the system’s total impaired loans rose by 0.7% y-o-y and 0.8% m-o-m.
By segment, consumer impaired loans accelerated by 6.9% y-o-y and 1.4% m-o-m, while impaired loans for businesses declined by 3.8% y-o-y and 0.3% m-o-m.
UOBKH Research said banking sector’s earnings growth of 6% is expected to lag the broader market’s projected 11% rise in 2024 earnings.
This is primarily due to factors such as net interest margins (NIM) which are expected to remain flattish with slight downside risk, an anticipated slowdown in non-interest income growth and the absence of material credit-cost tailwinds.
Overall, the sector’s dividend yields are attractive, surpassing 5% with stable asset quality, the research house said.
Meanwhile, MIDF Research said it is maintaining its “neutral” call on the banking sector.
The brokerage said its top downside risks include gross domestic product slowdown which would affect balance-sheet growth, tighter-than-expected NIM compression because of competitive loan yields and lacklustre non-interest income results.
Its top picks are Hong Leong Bank Bhd
and Alliance Bank Malaysia Bhd.
