PETALING JAYA: Weaker-than-expected business loan growth, saw the banking industry's loan growth slowing down to 5.5% in December last year, , down from +5.8% in November 2024.
With this, 2024 loan growth came in at 5.5%, which is at the lower end of UOB Kay Hian (UOBKH) Research's 5.5%-6% forecast.
Although it expects sluggish corporate loans, the research firm is maintaining its 2025 loan growth target of 6%-7%.
Supporting this is expectation that private investment growth will remain robust and there is continued recovery in tourism.
"Our forecast implies a loan-to-gross domestic product multiple of 1.25 times, within the historical 0.90 times-1.70 times range," UOBKH Research said in a report.
December 2024 loan growth for the household segment remained steady, with a growth of 6%, which was down slightly from 6.1% in the previous month.
UOBKH Research noted the moderation in the business segment’s growth was primarily due to a slowdown in corporate loans. In contrast, the household segment's growth was supported by sustained demand for mortgage and auto loans.
"Leading indicators weakened, with loan applications declining 8.9% year-on-year (y-o-y) in December, while approvals fell 10.9%. Applications declined across both household and business segments. Similarly, banks were less inclined to lend, as approvals dropped for both household and business loans."
Competition for fixed deposits intensified seasonally, but was less aggressive than in the fourth quarter of 2022 (4Q22) and 1Q23.
"The sector is currently trading at one standard deviation (1SD) above its historical mean price-to-book value (PBV) of 1.13 times, while its expected sector earnings growth of 7% for 2025 continues to lag the KLCI’s 12% growth.
"As such, we think that the positive macro and liquidity factors favouring the sector are largely priced in," added the research firm. It recommends a switch to laggard stocks for a better risk-reward balance.
"In this respect, we favour Public Bank Bhd
, RHB Bank Bhd and Hong Leong Bank Bhd, which trade at an attractive 1SD below their historical mean PBVs. Public Bank and Hong Leong Bank could benefit from potential credit cost tailwinds. Meanwhile, with asset quality metrics now stabilised and strong pre-provision growth of 13%, RHB is poised to outperform, further reinforced by its high beta."
A quick poll of reports released yesterday showed research firms maintaining their positive stance on the sector.
CGS International (CGSI) Research projects 2025 loan growth to come in between 4.5% and 5.5%. Downside risk could come from weaker expansion in auto loans as it projects a decline in auto sales in 2025. In 2025, it expects household loans to expand by between 5.5% and 6% and business loans by around 5%.
"We are encouraged to note that the banking industry’s gross impaired loan (GIL) declined by RM2.8bil in 2024, leading to a contraction of 21 basis points in banks’ GIL ratio in 2024.
"Another positive take was the RM1.24bil quarter-on-quarter drop in banks’ total provision in the 4Q24. Deduced from the above, we think that banks’ loan loss provisioning (LLP) remained low in 4Q24 (below RM1bil), translating to a decline of more than 40% y-o-y. "
It said the low LLP in 4Q24 could have partly arisen from the write-back of management outlay by certain banks.
For 2025, CGSI is projecting net profit growth of 6.2% for banks -- slower than the 8.2% it forecasts for 2024F.
In its view, the key earnings drivers in 2025 are likely to be increases in net interest and non-interest incomes. The research firm also forecasts a jump of 5% in overheads and 14% in LLP in 2025.
Potential sector rerating catalysts will be further write-backs in management outlay, and an uptrend in dividend payout ratios for most banks.
