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Author: kltrader   |   Latest post: Tue, 21 May 2019, 2:57 PM


BNM May Stats: What Are MQ Research’s Banking Stock Picks?

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Macquarie Equities Research (MQ Research) is overweight on banks in its report dated yesterday (16 Jul), following the release of May’s banking system data by Bank Negara (BNM). System loan growth rose to 4.9% year-on-year, the highest since Sept 2017, although system loan applications and approvals moderated on GE14-related uncertainties.


  • May system loan growth rose to 4.9% year-on-year (YoY) (April: 4.8%), its highest since Sept 2017; yet system loan applications and approvals moderated on GE14-related uncertainties/ shortened work month, while mortgage growth also inched lower, to 8.8% YoY (April: 8.9%). The average lending rate (ALR) continued rising post overnight policy rate (OPR) hike in Jan which, with deposit rates flat, bodes well for net interest margin (NIM). System non-performing loans (NPL) have been rising but ratio is near record-lows. Per 1Q results, banks with regional platforms (Maybank, CIMB, RHB Bank) have greatest potential for outperformance re loan growth, and net credit cost moderation (MFRS 9 adoption has been relatively seamless).


  • Business lending continued to recover, to 4.0% YoY (April: 3.6%), with working capital growth accelerating to 2.3% (April: 1.3%) – while corporate lending may underwhelm given new government policy uncertainty, consumption-led broad credit demand should mitigate. Household lending grew a slightly slower 5.6% YoY (April: 5.7%) – while mortgage growth also slowed, YTD mortgage loan growth at 3.2% is still substantially above broad sector (1.9%).
  • System deposits growth decelerated, to 4.9% YoY (April: 5.6%, its strongest since mid-2015); improved system liquidity (1Q18 aggregate Ringgit surplus liquidity placed with BNM is an ample RM199bn) is having a moderating effect on deposit rates (flat) even as ALR trends higher (ALR has now risen by 36bps year to date (YTD) vs. fixed deposit rates at c.22bps) and current account, savings account (CASA) share of deposits having risen significantly (at 26.8% vs. record 27.8%) – net effect should be a continued (per 1Q18 reporting) albeit moderating uptrend for sector NIM.
  • Gross NPLs rose a fifth straight month, to RM25.9bn (April: RM25.5bn); NPL ratio +2bps, to 1.6% (vs. Dec low of 1.53%). System coverage (94%) and common equity tier 1 (CET 1) ratios (12.9% post-dividends/MFRS 9) remain healthy.


  • MQ Research is overweight the banks for broadly improved fundamentals – whilst loan growth remains challenging, earnings momentum is supported by rising NIM, opex containment and falling credit costs.
  • MQ Research’s absolute upside picks are CIMB and 1Q18 mid-cap outperformers RHB Bank and Hong Leong Bank.
  • Selling pressure on Maybank re Hyflux credit exposure appears overdone and is an opportunity to accumulate, especially for those wanting to be defensively positioned re the government’s 100 days transition period.
  • Public Bank has similar tactical low-beta defensive attraction, though longer-term, investors should switch out given structurally crimped growth prospects vis-à-vis Asia-topping valuations.

Source: Macquarie Research - 17 Jul 2018

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