PETALING JAYA: Weaker-than-expected business loan growth caused the banking industry’s overall loan growth to slow down to 5.5% in December 2024, down from 5.8% in November.
As a result, loan growth for 2024 came in at 5.5%, at the lower end of UOB Kay Hian (UOBKH) Research’s forecast range of 5.5% to 6%.
Although it expected corporate loans to remain sluggish, the research house maintained its 2025 loan growth estimate of 6% to 7%.
This is supported by expectations of continued robust private investment growth and a 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 in the household segment remained steady at 6%, just slightly down from 6.1% previously.
The research house noted the moderation in the business segment’s growth was mainly due to a slowdown in corporate loans.
In contrast, the household segment’s performance was supported by sustained demand for mortgage and auto loans.
According to UOBKH Research, 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,” it said.
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 FBM KLCI’s 12% growth.
“As such, we think that the positive macro and liquidity factors favouring the sector are largely priced in,” it added.
It recommended a switch to laggard stocks for a better risk-reward balance.
UOBKH Research favoured Public Bank Bhd
(PBB), RHB Bank Bhd and Hong Leong Bank Bhd, which are trading at an attractive 1SD below their historical mean PBVs.
“PBB 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 houses maintaining their positive stance on the sector.
CGS International (CGSI) Research projected 2025 loan growth to come in between 4.5% and 5.5%.
Downside risk could come from weaker expansion in auto loans as it anticipated a decline in auto sales in 2025.
The research house expected household loans to expand 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,” it said.
“Another positive take was the RM1.24bil quarter-on-quarter drop in banks’ total provision in the 4Q24.”
Thus, CGSI Research opined 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 projected a net profit growth of 6.2% for banks – slower than the 8.2% it forecasts for 2024.
In its view, the key earnings drivers in 2025 are likely to be increases in net interest and non-interest incomes.
The research house estimated a jump of 5% in overheads and 14% in LLP this year.
Potential sector rerating catalysts include further write-backs in management outlay and an uptrend in dividend payout ratios for most banks.
