KUALA LUMPUR: RHB Research believes banks have enough levers in place to continue earnings and dividend growth despite topline pressure from margins and slower loan growth.
The investment bank stated in a note today that system loan growth remained consistent, reaching 4.5 per cent year on year (y-o-y), but was flat month on month (m-o-m), as the Aidil Fitri festivities saw a little gain in household loans offset by a decline in the non-household segment.
"Deposits rose 6.4 per cent y-o-y while declining 0.4 per cent m-o-m," it added.
According to RHB Research, April system loans rose 4.5 per cent y-o-y, mostly led by households.
Non-household (up 3.5 per cent y-o-y) was driven by the transport and communications (up 12.5 per cent y-o-y) and finance, insurance, and business (up 12.5 per cent y-o-y) sectors, while loans for manufacturing contracted 3.8 per cent y-o-y.
By purpose, the biggest drivers for system loan growth were residential property (up 6.5 per cent y-o-y) and transport vehicles (up 8.4 per cent y-o-y), while working capital slowed down sequentially by 0.9 per cent.
RHB Research also said lending indicators remain encouraging, where on a three-month moving average (3MMA) basis, loan applications of RM115 billion improved five per cent m-o-m and eight per cent y-o-y, despite the average lending rate increasing seven basis points to 5.26 per cent from 5.19 per cent in March 2023.
Loan approvals picked up, at 5.7 per cent m-o-m and 15.5 per cent y-o-y, but loan disbursements saw a two per cent decline m-o-m and an increase of 5.4 per cent y-o-y.
Meanwhile, RHB Research said system deposits grew 6.4 per cent y-o-y, outpacing loans growth, but declined marginally by 0.4 per cent m-o-m.
Fixed deposits continued to outpace current account savings account (Casa), with Casa ratio dipping to 30.4 per cent. "Feedback from some banks' management teams suggest that the deposit competition has seen some easing post the first quarter of 2023 (1Q23).
"Assuming peak deposit campaign rates have passed, and coupled with May's overnight policy rate (OPR) hike, sequential net interest margin (NIM) pressure in the coming quarters would not be as severe as that of 1Q23," it added.
RHB Research also highlighted that the banking system remains liquid and well capitalised with a loan-to-deposit ratio (LDR) of 85.3 per cent and common equity tier-1 (CET-1) ratio of 14.8 per cent.
It noted that in March, SME loans increased by 2.3 per cent y-o-y as most of the growth was driven by wholesale and retail 10.3 per cent y-o-y and finance 3.2 per cent y-o-y.
Overall, RHB Research has maintained its "Overweight" call on the banking sector, with its top picks include Malayan Banking Bhd, Hong Leong Bank Bhd and CIMB Group Holdings Bhd.