Malaysian banks face flattish NIMs amidst slower-than-expected loan growth

Dividend yield will remain attractive, however, says UOB Kay Hian.

Malaysian banks’ net interest margins (NIM) are expected to remain “flattish” in 2024 amidst slowing loan growth, according to UOB Kay Hian.

System loans growth of 4.1% in August is trending lower than UOBKH’s earlier full-year estimates of 4.5%, UOBKH analyst Keith Wee Teck Keon said in a report.

The slower loans growth was a result of softer business loans growth. Business loans rose only by 2.1% in August compared to 2.3% in July. Household loans edged up slightly by 5.6%, compared to 5.5% in July. Mortgage and auto loans grew by 7.1% and 9.1% in August, respectively.

Furthermore, whilst there was an increase in loan demand, approvals declined. Loan applications rose 7.8% in August compared to the same month in 2022, reversing the 6.6% decrease in applications in July. However, approvals declined 7.7% compared to August 2022, versus the 0.5% increase in July.

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On the upside, the sector will continue to see an attractive dividend yield of as high as 5%, Wee said.

Deposit growth moderated to 4.6% in August, versus 5.3% in July.

System gross impaired loans (GIL) ratio ticked up 2 basis points (b) to 1.78% in July. The GIL ratio is expected to continue edging upwards and potentially peak at 2% to 2.3%, as repayment assistance continues to unwind.

“However, banks have made sufficient pre-emptive provisions, which should help keep sector net credit cost stable at 29bp in 2023,” Wee said.