Kenanga Research & Investment

Author: kiasutrader   |   Latest post: Mon, 27 May 2019, 9:40 AM


Banking - BNM Stats: (Feb 19) – Slowing on All Fronts

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Loans continued to moderate as loans growth shed 5bps to +5.0% YoY, as both applications and approvals fell 14% and 7% YoY, respectively. With uncertainties and volatility still prevailing, our NEUTRAL call is maintained. However, valuations are looking attractive with most banks under our coverage are rated OUTPERFORM with the exception of CIMB (MP, TP: RM6.10), HLBANK (MP, TP: RM20.60), PBBANK (MP, TP: RM24.10) and RHBBANK (MP, TP: RM5.80).

Growth slowing on all fronts… Loans growth continued to moderate in Feb 2019, shedding another 50bps to +5.0% YoY vs Jan 19: +5.5% YoY to RM1,675b). MoM loans fell 0.2%. Both Business and Households moderated with Business at +4.6% YoY (vs Jan 19: +5.3% YoY) and Households at +5.3% (vs Jan 19: +5.6%). The moderations in both households are likely due to sentiment and not caused by the festive season as previous data showed uptick for February especially from Households. On an annualized basis, loans growth moderated to +0.9% (vs Jan 19: +3.6% vs Feb 18: +4.5%)

Moderation was broad-based but corporate bonds reversing its trend. While moderation was broadbased for Business, loans in the construction sector took the hardest hit slowing by 5ppts to +2.8% YoY (vs Jan 19: +7.9% YoY). Slowdown in Households was also broad-based with the exception of HP, which drifted by another 30bps to -0.6% YoY (Jan 19: -0.3% YoY). Feb 19 also saw repayments (+3.8% YoY vs Jan 19: +14.2% YoY) outpacing disbursements (-2.3% YoY vs +11% YoY). Both Business and Households disbursements fell in Feb 19 (-1.5% YoY and -4.4% YoY respectively vs Jan 19: +12.8% YoY and +6.3% YoY). Overall net financing in the system shed 10bps to +5.4% YoY with loans growth slipping by 50bps to +4.5% YoY (Jan 19: +5.0% YoY) but corporate bonds saw an uptick (+60bps vs Jan 19: -70bps) to +7.9% YoY.

Weak sentiments…The moderation in outstanding loans was compounded by weak sentiments as loans applications fell further (-14.0% YoY vs Jan 19: -5.5% YoY) to RM45,575b (vs Jan 19: 70,654b) with both Business and Households falling by 20.1% YoY and 7.4%, YoY respectively (vs Jan 19: -10.0% YoY and -0.7% YoY). For Business, falling applications were evident in construction falling by 57% YoY (vs Jan: +58% YoY) to RM1.53b. For Households, falling applications were evident in Personal Financing (-15% YoY vs +0.3% YoY), HP (-12% YoY vs Jan 19: -8% YoY) and credit card (-18% YoY vs Jan 19: -14% YoY).

Falling approvals. Compounding further the moderation in loans growth was falling approvals (-6.7% YoY vs -4.8% YoY) with Business approvals saw a moderate decline (-3.1% YoY vs Jan 19: -8.3% YoY) to RM11,968b whilst Households fell steeply (- 10.2% YoY vs Jan: -0.9% YoY) to RM11,306b. Due to falling applications outpacing falling approvals, approval rate in the system surged by 6ppt to 47% as both Business and Household surged to 50% and 44%, respectively (vs Jan 19: 45% and 42%, respectively).

Deposits bucking the trend. Liquidity in the system continued to improve as excess liquidity improved by 40bps to 11.0% to RM207b. Deposits bucked the moderating theme, improving by 20bps to +6.9% YoY, with higher deposits from the Federal Government and Others at +25% and +7% to RM25,817b and RM105,931b, respectively (Jan 19: +2.3% YoY and +5.8% YoY respectively). Loan-to-fund (LTF) ratio and loan-to-deposit ratio (LDR) were relatively stable at 83% and 89%, respectively.

Average lending rate retreated by 2bps for Feb 19 to 5.02%, as was the 3-month deposit which shed 1bps to 3.16% alleviating downside pressure on NIM.

Asset quality contained. February 19 saw a 3bps uptick in Gross Impaired Loans (GIL), led by Business (+6bps uptick to 1.86%) while Household saw a 2bps uptick to 1.11%. Net Impaired loans saw a 2bps to 0.93%. Overall on a year to year basis, asset quality seemed contained as Net Impaired and Gross Impaired was at 0.94% and 1.55%, respectively, in Feb 18.

Loans to be driven by Households. Despite the weak sentiments from Households, we believe that 2019 loans will be supported by a resilient household on account of accommodative interest rates and stable asset quality. Further external risks might put a dampener on business sentiments with softer demand and applications with higher risk perceived lowering approval rates. The dampening credit demand might be exacerbated by an increase in corporate bonds as upside pressure on interest rates lessens. While we view that banks will still maintain selective asset quality, the stable system asset will see continued demand from the resilient households especially demand for residential property and personal financing (from quality borrowers).

The contained asset quality should support the growth from households as banks will have a healthier appetite for household loans. Although personal loans and credit cards are on the downtrend, we believe banks will continue to grow these two spaces as asset quality from these spaces are still contained with GIL at 2.1% and 0.92%, respectively (down by 9bps and 25bps, respectively) from a year ago. Approval rate for personal loans/credit card improved/ remained stable at 35%/38%.

Uncertainties from the external fronts are still prevailing, with no visible catalyst/potential game changer ahead. Our Neutral view maintained and overall risk looks stable. Our view of moderate loans growth still holds; thus, we maintain a Neutral outlook for the sector. However, valuations seem more attractive and most of the banking stocks under our coverage are rated as OUTPERFORM except for CIMB (TP: RM6.10), HLBANK (TP: RM20.60), PBBANK (TP: RM24.10) and RHBBANK (TP: RM5.80) which are at MARKET PERFORM.

Source: Kenanga Research - 2 Apr 2019

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