Banks stay strong on sustained loan growth
The banking industry's total loan growth was sustained at 5.2% in both February and March.
By segment, household and business loans expanded by 6% year-on-year (y-o-y) and 4.8% y-o-y, respectively, in March.
In the first quarter of 2025 (1Q25), the banking industry's total loans increased by 1.1%, translating to an annualised loan growth rate of 4.3% for 2025.
'This is slightly below our projection of between 4.5% and 5.5% for loan growth in 2025.
'The marginal slippage was mainly due to the weak loan expansion of only 0.1% month-on-month (m-o-m) in February, but this improved to 0.6% m-o-m in March,' CGS International (CGSI) Research said.
The research house maintained its 'overweight' rating on Malaysian banks, premised on potential sector rerating catalysts of further write-backs in management outlay and an uptrend in dividend payout ratios for most banks.
'The dividend yield for the sector is also attractive at 5.8% for 2025.
'Downside risks include a material deterioration in asset quality and loan growth,' it said, adding that its top pick for the sector is Hong Leong Bank Bhd (HLBB).
Meanwhile, banks' total provisions declined by RM517.2mil, or 1.7% quarter-on-quarter in 1Q25, from RM29.9bil at end-December last year to RM29.4bil at end-March.
'As such, we think that the banking sector's loan loss provisioning (LLP) in 1Q25 would likely remain benign, not far off from the levels of between RM850mil and RM920mil in the preceding three quarters (from 2Q24 to 4Q24).
'Based on this, banks' LLP could have declined by more than 20% in 1Q25, assuming banks' total LLP falls in the range of RM950mil to RM1bil in 1Q25,' CGSI Research added.
Similarly, Maybank Investment Bank Research (Maybank IB) has kept its 'positive' stance on the sector, with its three top picks being Public Bank Bhd , HLBB and AMMB Holdings Bhd .
'Public Bank is well-managed and its RM1.1bil management overlays should keep credit costs low.
'The acquisition of LPI Capital Bhd enhances non-interest income and we think that concerns over a share overhang are overblown,' the research house noted.
Additionally, it said HLBB offers strong asset quality, high loan loss coverage and a very liquid balance sheet, while AMMB's focus on proactive funding cost management and business banking operations should contribute to growth momentum, as it strives for higher dividend payouts.
Moving forward, Maybank IB has lowered its industry loan growth forecast downward to 4.8% from 5.5%, on the back of slower gross domestic product growth this year amid external economic volatility.
Meanwhile, Kenanga Research maintained that the banking sector continues to be defensive amid unfavourable foreign trade policies, driven by supportive appetite for loans and generally stable economic pillars.
Its top pick for 2Q25 is AMMB, for its efforts in optimising its return on equity (ROE) and increasing payouts to drive dividend yields above the current 5%.
The research house also likes Malayan Banking Bhd for remaining the market share leader while still expanding at the expense of larger peers.
It recently upgraded CIMB Group Holdings Bhd, which it believes is now trading at more palatable levels for accumulation, with ROEs positioned to breach 12% and yields at a more attractive 6%.
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