Banks well-positioned as loan growth set to accelerate

KUALA LUMPUR: Banks' loan growth is expected to accelerate later in the year, driven by disbursements from previously approved large-scale investments, said Hong Leong Investment Bank Bhd (HLIB).
For the financial year 2025 (FY25), the firm expects credit demand to remain resilient and is maintaining its loan growth projection at between 5.5 per cent and 6.0 per cent.
HLIB said loan growth remained stable at 5.2 per cent in March, supported by a rise in business loans, which grew to 4.8 per cent from 4.5 per cent in February, driven by stronger working capital demand from non-small and medium enterprises.
Meanwhile, household loan growth eased slightly to 5.9 per cent from 6.0 per cent, still underpinned by mortgage and automotive financing.
The firm said the deposit grew by 0.4 per cent on monthly basis, althought the current account savings account ratio easing slightly to 31.3 per cent.
Competition for fixed deposits (FDs) remained benign, with no notable sequential rate increases observed.
Encouragingly, asset quality improved in March, as the gross impaired loans (GIL) ratio declining by three basis points month-on-month to 1.42 per cent, with improvements seen across both business and household segments.
"Looking ahead, asset quality is expected to remain stable given resilient local economic conditions.
"In any case, we are not concerned on any weaknesses as banks are better equipped versus prior slumps, the large impaired loan allowances built up over the past five years act as robust buffer to cushion any spike in GIL ratio," it added.
Average lending rates declined to 4.97 per cent, while the three-month FD rate rose to 2.58 per cent, resulting in a narrower interest spread of 2.39 per cent, the lowest since November 2022.
Despite this, the firm expects net interest margins to remain stable in the first quarter of 2025, supported by reduced deposit competition and disciplined pricing strategies.
HLIB maintained its 'overweight' call on the banking sector, citing solid fundamentals, undemanding valuations and an appealing dividend yield.
The firm's top three stock picks include CIMB Group Holdings Bhd, AMMB Holdings Bhd and RHB Bank Bhd with target prices of RM8.80, RM6.20 and RM7.70, respectively.
HLIB said these banks offercompelling value and robust growth prospects within the sector.

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