Investment Highlights

• Industry loan growth gained traction to 6.0%YoY in Oct 2018 (Sept 2018: 5.7%YoY) supported by stronger momentum in nonhousehold loans while growth in household loans remained stable. Year-to-date (YTD) annualised industry loan growth was 5.4%, and it remained close to our expectation of 5.0% for 2018.

• Slower growth in loan applications due to slow down in pace of non-household applications. Oct 2018 saw the growth in industry loan applications slipping to -0.4%YoY vs. 6.1%YoY in the preceding month as growth in non-household applications although partially offset by higher household loan applications.

• Softer loan approvals. Growth in industry loan approvals dropped to 15.0%YoY in Oct 2018 vs. 25.5%YoY in Sept 2018. Contributing to this was the decline in growth of approvals for non-household loans to 21.1%YoY while that of household loans rose to 9.9%YoY. Approvals for working capital loans slipped in Oct 2018. On household loans, approvals for mortgage loans and credit cards improved while that of other segments, which included approvals, of car financing slowed down.

• Industry deposit growth accelerated but growth in CASA continues to slow down. Industry deposit growth accelerated to 7.0YoY in Oct 2018 from 6.4%YoY in the preceding month. Business deposit decelerated to 4.7%YoY while growth in individual deposits has held up at 5.3%YoY. Industry FDs have been seen rising but CASA growth continued its declining trend to register a slower growth rate of 2.5%YoY (Sept 2018: 3.4%YoY. The sector’s CASA ratio declined further to 25.8% from 25.9% in the preceding month. The slowdown in CASA growth is expected to put some pressure on banks’ NIMs. Industry LD ratio in Oct 2018 improved to 87.9% from 88.6% in the preceding month. The sector’s liquidity continued to be healthy based on a loan-to-fund ratio and loan-to-fund and equity ratio of 83.3% and 72.7% respectively.

• Stable weighted average lending rate (ALR) and base rate. The sector's weighted ALR was steady at 5.42% while the weighted base rate stood at 3.90%. Interest spread (using the difference of the weighted average lending rate and 3-month FD rate as proxy) was firm at 2.26%.

• Impaired loans in Oct 2018 declined marginally by 0.4%MoM, and the industry GIL ratio remained stable at 1.5%. Industry’s NIL ratio continued to be steady at 0.94% while the sector’s loan loss cover has strengthened to 96.4% following lower impaired loans.

• Capital ratios continued to be healthy. The sector's CET1, Tier 1 and total capital ratios were 13.1%, 13.8% and 17.2% respectively.

• Issuances of new bonds and sukuks were more active in Oct 2018 but the YTD net funds raised by the private sector remained slow. Market indicative yields for the 10-year MGS rose MoM as was the case for 5-year MGS. Cumulative net funds raised in the market by the private sector for the first 10 months of 2018 was RM48.8bil, a drop of 34.2%YoY.
• Maintain OVERWEIGHT on the sector with Public Bank and Maybank as top picks. We have BUY calls on RHB Bank (FV: RM6.20/share), Public Bank (FV: RM26.00/share), Alliance Bank (FV: RM5.00/share), BIMB Holdings (FV: RM5.40/share), Maybank (FV: RM10.70/share) and MBSB (FV: RM1.27/share).

Source: AmInvest Research - 3 Dec 2018