Investment Highlights

• Industry loan growth moderated further to 4.5% YoY in April 2019 (March 2019: 4.9% YoY) due to a slowdown in both household and non-household loans. The industry loan growth moderated to 4.5% YoY or an annualised YTD growth of 1.5% in April 2019 as non-household loan growth decelerated to 3.6% YoY in April 2019 (March 2019: 4.4% YoY) with growth in working capital loans easing. Household loans registered a slightly slower growth of 5.2% YoY.

• Loan applications continued to improve in April 2019 while approvals were modestly softer. Both household and non-household loan applications continued to pick up momentum. Meanwhile, approvals of household loans rose while that of non-household was slower, thus slowing down the overall loan approval growth rate for the sector slightly in April 2019.

• Industry deposit growth was marginally higher while growth in CASA continued its upward trend for the 3rd consecutive month. Industry deposit growth climbed to 6.4% YoY vs. 6.3% YoY in March 2019 contributed by a faster pace of individual deposits while growth of business enterprise deposits slowed down. As a result of the slightly higher deposit growth, LD ratio for the sector in April 19 further eased to 87.2%. The sector’s liquidity remained steady with a loan-to-fund ratio and loan-to-fund and equity ratios of 82.0% and 71.6% respectively. CASA ratio remained stable at 25.9%. LCR for the sector surged to 160.0% contributed by stronger ratios from commercial, Islamic and investment banking.
• Stable weighted base rate and average lending rate in April 2019, but these rates will decline in May 2019 due to the recent OPR cut of 25bps. The sector's weighted base rate and ALR were steady at 3.93% 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) continued to hold up at 2.27%.
• Upticks in Impaired loans largely driven by rise in impairments of working capital loans while asset quality ratios continued to hold up. The industry’s outstanding impaired loans in April 2019 rose by 3.4% MoM mainly due to higher impairments of working capital loans. Industry’s GIL remained a steady 1.5% while NIL ratio increased slightly to 0.98%. Loan loss cover fell to 92.7% from 96.1% in the preceding month due to the increase in impaired loans.

• Capital ratios eased 20bps MoM. The sector's CET1, Tier 1 and total capital ratios were as 13.5%, 14.2% and 17.8% respectively.

• 5- and 10-year MGS yields increased by 6bps and 3bps due to weaker investor sentiment. Investor sentiment was impacted by geopolitical tensions, a revision of the IMF’s global growth rate and concerns on the exclusion of Malaysia from the World Bond Index after FTSE Russell’s review in September 2019.

• Year-to-date net funds raised by the private sector slid by 23.6% YoY due to slower new issuance of bonds/sukuks. YTD net issuance of new bonds and sukuks fell by 35.2%.

• Maintain OVERWEIGHT on the sector as valuation and dividend yields of banks remain compelling. Our top picks are RHB Bank (FV: RM6.60/share), BIMB Holdings (FV: RM5.20/share) and Maybank (FV: RM10.60/share).

Source: AmInvest Research - 3 Jun 2019