Kenanga Research & Investment

Author: kiasutrader   |   Latest post: Fri, 22 May 2020, 9:50 AM


Banking - BNM Stats: (Sep 18) – Business Leading the Charge

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September 18 loans continued its upward trend at a faster pace adding another 30bps to +5.7% YoY. Household loans slowed in September, and likely ahead as applications fell. Our view of moderate loans (with a downside bias) ahead still holds with competitive lending supportive of credit demand. Neutral outlook for the sector remains as economic uncertainties still prevails. Due to recent retracement in share prices, most of the stocks in our banking universe are rated as OUTPERFORM except for HLBANK (TP: RM20.15) and PBBANK (TP: RM23.85) which are rated as MARKET PERFORM.

Business leading the charge. A month into new SST regime loans continued its uptrend at a higher pace, adding another 30bps in Sep 18 to +5.7% YoY (Aug 18: +5.4% YoY) to RM1,650b. MoM loans maintained its pace, at +0.6% MoM. The higher pace of loans was driven by Business loans (+90bps uptick to +5.2% YoY) whilst not surprisingly Household loans slide by 20bps to moderate at +6.2% YoY as the tax holiday ends. Uptick in outstanding loans can also be attributed to disbursements (Sep 18: +14.1% YoY vs Aug 18: +4.2%) outpacing repayments (Sep 18: +8.5% YoY vs Aug 18: +3.5% YoY). Disbursements to household moderated to +7.0% YoY (Aug 18: +12.4% YoY) as Business disbursements surged to +16.5% YoY (Aug 18: +1.4% YoY). On an annualized basis, loans grew another 20bps to 5.6% YoY (Jul 18: +5.4% YoY).

Uptick in Business loans was driven by working capital and purchase of securities at +4.6% YoY and +7.3% YoY respectively (Aug 18: +2.9% YoY and +5.9% YoY respectively) while for household segment, the moderation was underpinned by loans for mortgages (-20bps to +8.0% YoY) and credit card (-120bps to +3.7% YoY). Overall net financing in the financial sector moderated by 40bps to +6.5% YoY (Aug 18: +6.9% YoY) as corporate bonds slowed by 260bps to +10.8% YoY as fears of an interest rate hike receded whilst loans added another 30bps in Sep to end at +5.1% YoY.

Looking ahead households might moderate as September household applications fell (-4.9% YoY vs Aug 18: +4.7% YoY) as Business applications surged ahead at +17.6% YoY (Aug 18: +6.0% YoY). Overall loans applications improved by another 100bps to +6.3% YoY. Business applications were driven by rebounds in both working capital (+4.2% YoY vs Aug 18: -9.8% YoY) and purchase of securities (+62.9% YoY vs August 18: -18.8% YoY) to RM16.8 and RM3.8b respectively. Fall in household applications was underpinned by decline in residential property purchases (-2.6% YoY vs August 18: +3.0 YoY) and purchase of passenger cars ( -20.7% YoY vs August 18: +9.1% YoY).

Approvals up, driven by Business, rebounding at +47.8% YoY (vs August 18: -8.0% YoY) as households slowed to +2.7% YoY (vs August 18: +8.1% YoY). Business approvals were underpinned by rebounds in purchase of securities and other purposes at +101.5% YoY and +83.0% YoY respectively (vs August 18: -38.0% YoY and -50.6% YoY respectively) to RM2.9b and 5.4b respectively. Moderation in household loans’ approvals was caused by slower application for passenger cars (+5.0% YoY vs August 18: +33.7% YoY)

Overall system approval improved slightly by 70bps to 44.6% with both Business and Household loans improving by 120bps and 20bps respectively to 46.7% and 44.6% respectively.

Liquidity improved by foreign-currency deposits. After a slight blip in August, September deposits pick-up pace by 60bps to +6.1% YoY to RM1,842b on account of higher foreign-currency deposits, which turned northwards for the first time since October 2017. While CASA growth remained constant (+3.4% YoY ) FD growth slowed by 70bps to +7.8% YoY, but foreign-currency deposits rebounded to +10.5% YoY (Aug18: -6.9% YoY) to RM136.9b. CASA ratio/total deposits fell by another 30bps to 26.2%. While loan-to-fund (LTF) ratio saw a 40bps uptick to 84.1%, loan-to-deposit ratio (LDR) fell by 70bps to 89.6% on account of higher deposits with excess liquidity improving adding another 70bps to 10.4%. September saw further fall in average lending rate, falling by another 5bps (Aug18: -9bps) to 4.93% (while the 3-month deposit rate fell by 1bps to 3.15%) adding downside pressure on NIM but likely supportive of credit demand.

Asset quality continued to improve. Net impaired loans continued to improve falling by another 28bps YoY to 0.94% (Aug18: 0.99%) with GIL easing by another 14bps YoY to 1.53% (Aug18: 1.58%). Both Business and Households showed improvement in asset quality as GIL for households eased by 6bps YoY at 1.11% (Aug18: 1.12%) whilst for Business easing by 22bps YoY to 1.94% (Aug18: 2.05%)

We still view the system loans to grow 5-5.5% YoY (with a downside bias) for 2018 as households likely to remain moderate but resilient in Q4. Competitive pricing will be supportive of credit demand. While we still maintain our view that banks will still maintain selective asset quality, the improved system asset qualities will support demand from the resilient households ahead especially demand for residential property and personal financing. Despite lending rates coming down, putting added pressure on NIM, stable excess liquidity coupled with moderate demand likely to alleviate downside pressure on NIM.

Due to the recent uncertainties on both domestic and external fronts, most of the banking stocks in our universe have seen significant retracements in their prices. The retracement gives attractive value propositions thus we revised our call upwards to OUTPERFORM for AFFIN (TP: RM2.50), ABMB (TP: RM4.40), MayBank (TP: RM10.00) and RHBBANK (TP: RM5.75) and maintained our OUTPERFORM call for AMBANK (TP: RM4.50), BIMB (TP: RM4.90) CIMB (TP: RM6.15) and MBSB (TP: RM1.40). The remainder, HLBANK and PBBANK we maintained MARKET PERFORM.

Source: Kenanga Research - 2 Nov 2018

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