HLBANK: Banking Sector Poised for Stronger Loan Growth Amid Improving Asset Quality

The banking sector concluded 2025 with system loan growth moderating to 4.8% year-on-year in December, a slight decrease from 5.2% in November but consistent with industry expectations of 4.5-5%. This performance was underpinned by steady household loan expansion, primarily driven by auto loans and residential mortgages, though non-household loan growth experienced a modest dip, potentially influenced by increased capital market fundraising activities.

Performance Overview

In December 2025, overall system loan growth stood at 4.8% YoY. Household loans exhibited robust growth of 5.3% YoY, while non-household loans grew at a slower 4.1% YoY. Deposit growth meanwhile registered a 3.4% YoY increase, largely driven by a significant 7.3% surge in CASA deposits, pushing the system CASA ratio to 32.3%. Despite this, deposit growth generally lagged behind loan expansion on a month-on-month basis.

Future Outlook and Key Drivers

Analysts project a strengthening of system loan growth to an accelerated 5-5.5% in 2026. This positive outlook is primarily driven by a healthy business loan pipeline and the anticipated materialization of previously delayed non-household loan disbursements. Loan applications and approvals for the full year 2025 saw increases of 4.6% and 4.1% YoY respectively, signalling sustained demand.

Furthermore, funding costs are expected to trend lower in the coming quarters. This is attributed to banks seeking non-deposit funding sources and the repricing of deposits following a policy rate cut in July 2025, which should be supportive of Net Interest Margin (NIM) going forward.

Asset Quality Remains Intact

The sector continued to demonstrate improving asset quality. The Gross Impaired Loan (GIL) ratio saw a 3 basis points month-on-month reduction, settling at 1.37%. Both household and non-household GILs registered declines, indicating robust credit health. The system Loan Loss Coverage (LLC) also eased to 84.8%, partly reflecting the proactive release of provision buffers by some banks. This strong asset quality underpins the sector’s resilience.

The combination of an improving macroeconomic backdrop, robust earnings momentum, attractive dividend yields, and potential for capital management reinforces an “Overweight” rating for the banking sector, suggesting sustained positive performance into the new year.