Investment Highlights

• Industry loan growth decelerated to 5.0%YoY in Feb 2019 (Jan 2019: 5.5%YoY) attributed to moderation in household and nonhousehold loans. The industry loan growth slipped to 5.0%YoY in Feb 2019. Non-household loan growth decelerated further to 4.7%YoY in Feb 2019 (Jan 2019: 5.4%YoY) with a slower pace of loans for construction and working capital. Also, growth in household loans eased to 5.2%YoY from 5.5%YoY in the preceding month. Maintain our loan growth projection 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.

• Soft loan applications and approvals persist in Feb 2019. Both household and non-household loan applications slowed down. Meanwhile, approvals of non-household loans improved with a lower negative growth rate compared with the previous month. However, momentum was weaker for household loan approvals with a contraction of 10.2%YoY.

• Industry deposit growth increased slightly and CASA ratio continued to be steady. Industry deposit growth rose slightly to 7.2%YoY. Business deposits grew at a slower pace of 2.8%YoY while individual deposits expanded by 5.4%YoY. As a result of the slowdown in loan growth, LD ratio for the sector in Feb 19 eased to 87.9%. The sector’s liquidity remained steady with a loan-to-fund ratio and loan-to-fund and equity ratio of 82.8% and 72.1% respectively. CASA ratio was stable at 26.1%.

• Stable weighted base rate and average lending rate. The sector's weighted base rate and ALR were steady at 3.92% and 5.43% respectively. No change to the average deposit rate (the average rates for FDs of up to 1-year tenure) at 3.21%. Interest spread (using the difference between the weighted average lending rate and 3-month FD rate as proxy) was stable at 2.27%.

• Upticks in impaired loans but asset quality ratio continued to hold up. The industry’s outstanding impaired loans in Feb 2019 rose by 1.4%MoM due to distress of several corporate borrowers. The upticks contributed the rise in impairment of loans from the primary agriculture, mining and quarrying, utilities, construction, transport, storage and communication, finance, insurance and business activities and household sectors. Nevertheless, the industry’s GIL and NIL ratios continued to hold up at 1.5% and 0.93% respectively while loan loss cover declined to 97.4% as a result of the upticks in impairments.

• Stronger capital ratios which remained healthy. The sector's CET1, Tier 1 and total capital ratios were 13.6%, 14.3% and 17.9% respectively.

• 5- and 10-year MGS yields declined due to inflow of foreign funds into the bond market. Market indicative yields for the 5- and 10- year MGS fell by 4.4bps and 17.4bps MoM respectively due to inflow of foreign funds into the government bond market.

• Year-to-date net funds raised by the private sector climbed 16.3%YoY. Net issuance of new bonds and sukuks were higher in Feb 2019 than the preceding month.

• Maintain OVERWEIGHT on the sector. Our top picks are RHB Bank (FV: RM6.30/share), BIMB Holdings (FV: RM5.10/share) and Maybank (FV: RM10.70/share). We have upgraded our call for CIMB to BUY from HOLD with an unchanged FV of RM5.80/share due to the recent share price weakness.

Source: AmInvest Research - 1 Apr 2019