HLBANK: Banking Sector Displays Resilient Performance, Promising Outlook for Loan Growth
Key Information | |
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Investment Bank | TA SECURITIES |
TP (Target Price) | RM0.25 (+25.0%) |
Last Traded | RM0.20 |
Recommendation |
Malaysia’s banking sector demonstrated continued resilience in August 2025, with key indicators pointing towards stable growth and effective management strategies. Despite an overall “Neutral” rating for the sector, specific strengths in loan growth, deposit management, and asset quality underscore a robust operational environment.
Performance Review
The sector’s financial performance showed steady progress, with system loans recording a 5.4% year-on-year (YoY) increase, maintaining a flat month-on-month (MoM) trajectory. This growth was notably propelled by a sequential acceleration in non-household loans to +5.0% YoY and continued strength in household loans at +5.7% YoY. Key drivers for non-household growth included finance, transport & communications, and wholesale & retail trade sectors. For households, residential mortgages and auto loans were the primary contributors. Critically, banks effectively managed their Net Interest Margins (NIMs) through pre-emptive fixed deposit rate cuts in August, preceding July’s Overnight Policy Rate (OPR) adjustment. This strategy resulted in improved interest spreads, highlighting an adaptive approach to cost efficiencies.
Loans and Deposits Dynamics
Leading indicators for loan applications and approvals remained positive, with cumulative gains of 5% and 4% YoY respectively for the first eight months of 2025. While loan disbursements saw a muted 7% YoY decline over the same period, robust loan approvals, especially a 7% YoY increase in the non-household segment, suggest a healthy build-up in the loan pipeline, expected to translate into stronger drawdowns towards year-end, particularly with the resolution of US trade agreements. Total deposits expanded 4% YoY (flat MoM), with CASA deposits (+6% YoY) outpacing fixed and other deposits, leading to a system CASA ratio of 31.4%, a 0.4 percentage point (ppt) increase YoY.
Asset Quality and Capital Adequacy
The banking system’s asset quality remained robust, with absolute Gross Impaired Loans (GILs) declining 4% YoY. The system GIL ratio held steady at 1.4%, with both household and non-household GIL ratios stable at 1.1% and 2.0% respectively. Provision buffers were also well-maintained, with the system Loan Loss Coverage (LLC) at 90%. Furthermore, system liquidity and capital buffers remained ample, indicated by a Liquidity Coverage Ratio (LCR) of 147% and a Common Equity Tier 1 (CET-1) ratio of 14.5%, both stable YoY.
Future Outlook
Despite the YTD annualised loans growth of +4.3% being slightly short of the sector’s 4.5-5.0% forecast for 2025, the underlying trends, including a strong loan pipeline and proactive NIM management, point towards a positive trajectory. Analysts maintain a preference for large banks with diversified income streams, indicating continued confidence in the sector’s capacity for sustained performance.