PETALING JAYA: The banking sector posted a decent performance last December with leading loan indicators being mixed, most likely due to the year-end holiday season, says CIMB Securities Research.
The research house stated that the sector’s asset quality registered a relatively larger improvement, underscoring its view that credit costs may drive the next earnings upgrade.
Last December, loan applications slid 8.7% year-on-year (y-o-y), but approved loan growth sustained its double-digit growth pace at 13% y-o-y.
Both leading loan indicators for the month under review were supported mainly by the household segment.
Meanwhile, loan growth closed 2024 with a decent 5.5% y-o-y increase driven mainly by auto, residential and non-residential mortgages.
However, deposit growth was softer at 3% y-o-y in December 2024 on the back of flattish business deposit growth of 0.1% y-o-y. “This we believe was triggered by deposit utilisation following a pick-up in gross domestic product activities,” said CIMB Research.
The loan-to-deposit ratio held steady at 87.8% in December 2024, unchanged from the previous month.
The research house also said December was also the fourth consecutive month of better loans for the sector.
Gross impaired loans improved by a relatively large 3.8% month-on-month (m-o-m) or RM1.3bil m-o-m in December 2024.
The improvement was broad-based, supported by recoveries in the residential and non-residential mortgages, construction, working capital and other purposes segments, CIMB Research noted.
The research house, which maintained an “overweight” stance on the sector, added “the likely rerating catalysts being better credit costs, non-interest income bond gains and a possible uplift in loan growth”.
CIMB Research’s top picks in the sector are Hong Leong Bank Bhd
(HLBB), AMMB Holdings Bhd and Malayan Banking Bhd (Maybank).
“We like HLBB given its solid book value, while concerns over its China operations are likely to dissipate over time.”
As for AMMB, the the research house said its valuation remains cheap, with earnings geared towards lower credit costs, a pickup in non-interest income and loan growth.
Maybank’s share price will likely be supported by its healthy dividend yield, CIMB Research added.
