KUALA LUMPUR (Nov 1): RHB Investment Bank (RHB IB) has indicated that Malaysian banks may see a slowdown in loan and deposit growth as they release their third-quarter results. Nonetheless, RHB IB advises investors to remain optimistic.
Growth in net interest income could benefit from banks’ prior moves to reduce deposit rates, while improved asset quality may allow for overlay reversals, both of which are expected to bolster banks’ bottom lines, according to the research firm.
RHB IB also anticipates a potential rise in loan disbursements, especially as loan approvals have shown an upward trend.
Recent data from Bank Negara Malaysia, released on Wednesday (Oct 30), revealed that loan growth decelerated to 5.6% year-on-year in September, down from 6.4% in June. Deposit growth also slowed to 3.3%, compared to 4.9% at the end of June.
While deposits grew at a slower rate, competition typically heightens in the last quarter of the year, which may increase banks’ funding costs and put pressure on net interest margins.
Lending metrics showed mixed trends, with a 5% decline in loan applications and a 4% dip in approvals, alongside an 8% decrease in disbursements. On a year-to-date basis, however, applications increased by 4%, approvals by 3%, though disbursements saw a 2% contraction.
Household borrowing, which represents the bulk of banking loans, is expected to sustain loan growth in the fourth quarter, supported by a 4% year-to-date increase in loan applications, RHB IB noted.
The research firm highlighted improvements in asset quality across the sector, including a reduction in gross impaired loans to 1.54% and an increase in loan loss coverage to 90.8%, exceeding pre-pandemic levels.
“Assuming economic conditions remain strong, we expect overlay reversals to further support earnings growth in the sector,” RHB IB stated.
As for strategy, RHB IB has maintained an “overweight” outlook on the banking sector, with AMMB Holdings Bhd (KL), Alliance Bank Malaysia Bhd (KL), CIMB Group Holdings Bhd (KL), and Hong Leong Bank Bhd (KL) as its top picks.
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