Banks poised for higher loan growth this year

PETALING JAYA: TA Research has raised its 2024 overall loan-growth forecast for banks to 5.8%, from 5.1% previously, on the back of more resilient business and consumer segments spurred by government-led initiatives, which are expected to stimulate investments and revitalise the economy.

The research house pointed out that loans and advances demonstrated a more robust surge than anticipated in the fourth quarter of 2023.

“The resilience of the business segment primarily propelled the substantial upswing, while consumer loans maintained a stable and healthy trajectory.

“Notably, construction and infrastructure activities are poised for a resurgence, driven by potential projects such as the Mass Rapid Transit Line 3 (MRT3), Penang Light Rapid Transit (LRT), Kuala Lumpursingapore High-speed Rail, and 33 high-priority flood mitigation projects valued at Rm11.8bil,” it added.

TA Research said investments in renewable energy, aligned with the National Energy Transition Roadmap (NETR), are anticipated to invigorate domestic activities and attract foreign investments.

The research house revised its growth forecast for business loans upward to 5.6% from the initial 4.2% boosted by more optimistic gross domestic product (GDP) and private investment projections.

On the other hand, it has adjusted consumer loans downward to 5.9% from 6.1% taking into account a recent decline in the approval rate for consumer loans over the past few months.

Nevertheless, the research house said mortgages, hire purchase (HP), and credit cards are expected to support consumer loans.

“However, we anticipate more subdued growth in property sales at 6%, compared with the robust 12% projected in 2023.

“Additionally, there are indications of a relaxation in forward sales orders, which may translate to a lower total industry volume (TIV) for automobiles in 2024, which we have projected at 650,000 units, reflecting a 7.1% year-on-year (y-o-y) decrease,” it said.

Despite the positive trend, TA Research has reiterated its “neutral” call on the banking sector due to several potential downside risks to the sector’s earnings.

These factors include underlying fears of a deterioration in asset quality due to significant external shocks.

These include a broader regional conflict in the Middle East that could result in a substantial increase in inflationary pressures.

The banking sector will also be dragged by potential lower contributions from overseas operations and sustained increase in overhead expenses.

“We also note that many banking stocks under our coverage are trading at or above one-standard deviation (SD) of their five-year price-to-book value cycle, indicating stretched valuations,” it added.

TA Research maintained a “buy” recommendation on CIMB Group Holdings Bhd, Hong Leong Bank Bhd and Alliance Bank Malaysia Bhd.

However, it has a “hold” call on RHB Bank Bhd and Malayan Banking Bhd, while reiterating its “sell” recommendation for Public Bank Bhd and Affin Bank Bhd.

The research house also downgraded AMMB Holdings Bhd to “sell” from “hold” as the risk-reward potential has narrowed.