KUALA LUMPUR: CIMB Securities maintained an "overweight" stance on the banking sector following strong loan growth of 6.4 per cent in July 2024.
The research firm said leading loan indicators accelerated strongly in July 2024, supported mainly by the household segment.
It stated that the growth indicates that the household segment seemed to have shrugged off the uncertainty arising from the diesel rationalisation plan from June 10, 2024.
"Gross impaired loans was stable in July 2024, marginally better by 0.8 per cent lower or declined RM293 million month-on-month (mom).
"The gross impaired loans ratio was unchanged at 1.6 per cent in July 2024, versus 1.6 per cent in June 2024," it said.
The firm added that the loan loss cover continued to strengthen to 91.8 per cent in July 2024 from 91.7 per cent in June 2024.
CIMB Securities' top picks in the sector are now Hong Leong Bank Berhad, followed by AMMB Holdings Berhad.
"We maintain our "Overweight" stance with further rerating catalysts being the non-interest income bond gains, with an estimated average earnings upgrade of 6.0 per cent for every 50 basis points (bps) drop in bond yield and a possible uplift to loan growth, with a sector two-year forward net earnings uplift of 5.0 per cent for every 2 percentage point (ppt) upgrade in loan growth.
"Key risks are unexpected sticky external inflation causing an external rate hike, outflow of liquidity, and worse-than-expected asset quality," the firm said.