Investment Highlights

• Industry loan growth slipped to 4.9% YoY in March 2019 (Feb 2019: 5.0% YoY) due to further slowdown in non-household loans while growth in household loans was stable. The industry loan growth moderated to 4.9% YoY as non-household loan growth decelerated further to 4.4% YoY in March 2019 (Feb 2019: 4.7% YoY). Loan growth for construction and working capital purposes slipped in March 2019. Household loans was stable with a growth of 5.3% YoY. Maintain our loan growth projection of 4.0–5.0% for the sector in 2019. With the revival of the ECRL and Bandar Malaysia projects, coupled with the commencement of other infrastructure projects such as the Penang LRT, non-household loan growth is anticipated to gradually pick up pace in 2020.

• Improvement in loan applications and approvals in March 2019. Both household and non-household loan applications though still contracted YoY, improved over that of Feb 2019. Meanwhile, approvals of household and non-household loans turned around to record growth in March 2019.

• Industry deposit growth decelerated, and CASA ratio continued to be steady. Industry deposit growth eased to 6.3% YoY vs. 7.2% YoY in Feb 2019 contributed by slowdown in both business enterprise and individual deposits growth. As a result of the slower loan growth, LD ratio for the sector in March 19 further eased to 87.3%. The sector’s liquidity remained steady with a loan-to-fund ratio and loan-to-fund and equity ratios of 82.5% and 71.9% respectively. CASA ratio was stable at 26.0%.

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

• Impaired loans declined after registering upticks in the previous month while asset quality ratios continued to hold up. The industry’s outstanding impaired loans in March 2019 declined by 1.1% MoM after upticks in Feb 2019 due to distress of several corporate borrowers. Industry’s GIL and NIL ratios continued to be sustained at 1.5% and 0.92% respectively while loan loss cover remained constant at 96.1%.

• Improved capital ratios by 10bps MoM. The sector's CET1, Tier 1 and total capital ratios were 13.7%, 14.4% and 18.0% respectively.

• 5- and 10-year MGS yields declined further due to inflow of foreign funds into the bond market. Market indicative yields for the 5- and 10-year MGS fell by 16.8bps and 13.0bps MoM respectively due to inflow of foreign funds into the government bond market.

• Year-to-date net funds raised by the private sector slid by 28.0%YoY due to slower new issuance of bonds/sukuks in Jan and Mar 2019. YTD net issuance of new bonds and sukuks fell by 44.1%. Meanwhile, activities for equity capital market was better YTD due to issuance of rights shares in Jan 2019.

• 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).

Source: AmInvest Research - 2 May 2019