Investment Highlights

• Industry loan growth eased to 5.5%YoY in Jan 2019 (Dec 2018: 5.6%YoY) as non-household loans moderated further while household loan growth remained intact. The industry registered a loan growth of 5.5%YoY in Jan 2019. Non-household loan growth fell to 5.4%YoY in Jan 2019 (Dec 2018: 5.7%YoY) with a slower pace of loans for construction. Meanwhile, growth in household loans was stable at 5.5%YoY. Moving forward, we expect the country’s export numbers to be softer, and we project a loan growth of 4.0–5.0% for the sector in 2019. We continue to expect both the non-household and household loans in 2019 to moderate from 2018.

• Slower pace of loan applications in Jan 2019. Jan 2019 saw a slower pace in industry loan applications with a growth of -5.4%YoY vs. 4.8%YoY in the preceding month. Both household and non-household loan applications slowed down.

• Loan approvals remained soft. Industry loan approvals stayed negative at -4,8%YoY. Nevertheless, its improved over Dec 2018’s growth of -10.1%YoY. Growth in approvals of non-household loans was better compared with the previous month. Meanwhile, momentum was weaker for household loan approvals.

• Industry deposit growth eased and CASA growth for the sector continued to be slow. Industry deposit growth decelerated to 7.1%YoY after gaining momentum in 4Q2018. Growth in business deposits slipped while that of individual deposits continued to rise. Industry LD ratio in Jan 19 rose marginally to 88.2%. The sector’s liquidity remained steady with a loan-to-fund ratio and loan-to-fund and equity ratios of 83.3% and 72.5% respectively (Dec 2018: 82.7% and 72.4%). Industry CASA growth fell to 0.8%YoY (Dec 2018: 1.2%YoY). Nevertheless, the sector’s CASA ratio improved slightly to 26.2% with a slowdown in FDs.

• Weighted base rate continued to trend higher as some banks such as BIMB and Hong Leong Bank raised their base rates. The sector's weighted ALR increased to 5.44% while base rate rose slightly to 3.92%. Jan 2019 saw the average deposit rate (the average rates for FDs of up to 1-year tenure) holding up at 3.21%. Interest spread (using the difference of the weighted average lending rate and 3-month FD rate as proxy) remained stable at 2.28%.

• Stable asset quality with industry GIL ratio declined to 1.4%. Industry’s NIL ratio continued to hold up at 0.91% while loan loss cover was intact at 97.4%.

• Stronger capital ratios which remained healthy. The sector's CET1, Tier 1 and total capital ratios were 13.4%, 14.1% and 17.7% respectively.

• MGS yields declined with the slowdown in normalisation of US monetary policy while net issuance of new bonds and sukuks by the private sector remained slow. Cumulative net funds raised in the market by the private sector for Jan 19 was RM6.1bil (- 10.3%YoY) as net issuance of corporate sukuk/bonds declined 60.2%YoY to RM2.7bil. Meanwhile, activities for equity capital market for the start of the year were better based on net issuance of shares and warrants of RM3.4bil in Jan 2019 vs. RM0.1bil in Jan 2018.

• Maintain OVERWEIGHT on the sector. Our top picks are RHB Bank (FV: RM6.30/share), BIMB Holdings (FV: RM5.50/share) and Maybank (FV: RM10.70/share).

Source: AmInvest Research - 5 Mar 2019