KUALA LUMPUR, Oct 2 — Investment analysts maintained a positive stance on the banking sector, with industry loan growth on track to end 2023 at 4.0 per cent to 4.5 per cent.

In a note today, Kenanga Research anticipated loans to be supported by a resilient mortgage supply with a growing take-up of affordable housing.

"However, broader industry-wide risks might remain regarding softening loan performance,” it said.

Kenanga said system loans grew by 4.2 per cent year-on-year (y-o-y) in August 2023, with household loans remaining dominant at 5.5 per cent as the demand for residential properties is thought to be skewed towards more affordable housing transactions amidst higher borrowing costs.

"On the other hand, business loans (+2.2 per cent) are holding up with support from service industries,” it said.

On a month-on-month (m-o-m) basis, Kenanga Research said both household and business loans grew by 0.7 per cent as flattish overnight policy rate (OPR) expectations have eased concerns on interest pressures and returned overall appetite to undertake loans.

It said net interest margins are due for stabilisation, with 2024 likely to see expansion from 2023’s just-recovering base.

"This would likely materialise on the back of flattish OPR expectations towards 2024, supported by the rates in the US that have more or less peaked,” it said.

Kenanga said that while it maintained optimism on the banking sector on better overall forward macros, it believed investors might still be highly selective in their long-term picks.

"For the banking sector, CIMB Holding Bank Bhd and AmBank Group have been selected as Kenanga Research’s top pick among the Malaysian banks, followed by smaller cap banks such as Alliance Bank Malaysia Bhd,” it added.

Meanwhile, Maybank Investment Bank Bhd (Maybank IB) said loan applications are expanding again, having contracted over the past two months.

"In addition, the current account savings account (Casa) continues to contract, but by a smaller quantum,” it said.

Having said that, Maybank IB reiterated its "positive” stance on the banking sector while recommending "buy” calls on Public Bank, CIMB, and Hong Leong Bank.

However, RHB Research maintained a "neutral” call on the sector amid a backdrop of normalising earnings growth heading into 2024.

It said that while Bank Negara Malaysia’s (BNM) banking system statistics for August showed y-o-y loan growth maintained at 4.2 per cent, lending indicators are softer with lower loan applications and approvals, partly due to a higher base last year.

"System Casa ratio ticked up month-on-month as the 12-month fixed deposit rate declined from its peak in May.

"The banking system remains healthy, with sufficient capital buffers — Common Equity Tier 1 stood at 14.5 per cent. Liquidity is ample with a loan-to-deposit ratio at 86.1 per cent and liquidity coverage ratio at a high 149 per cent,” it added. — Bernama