Investment Highlights

• Industry loan growth picked up pace slightly to 4.6% YoY in May 2019 (Apr 2019: 4.5% YoY) underpinned by modestly higher household loan growth while non-household loans were stable. The industry loan growth was moderately higher at 4.6% YoY or annualised YTD growth of 2.1% in May 2019 as household loan growth improved slightly to 5.3% YoY in May 2019 (Apr 2019: 5.2% YoY). Meanwhile, non-household loan recorded a stable growth of 3.5% YoY. May 2019 saw loan disbursements (+11.7% YoY) outpacing repayments of +8.1% YoY contrary to the trend seen in the first 4 months of 2019.

• Loan applications continued to improve while approvals of both household and non-household loans were significantly stronger in May 2019. Both household and non-household loan applications continued to pick up momentum. Meanwhile, loan approvals surged strongly in May 2019. We expect that to translate into stronger loan growth for the sector moving forward.

• Industry deposit growth was stable, and it continued to outpace loans. Positively, growth in CASA continued its upward trend for the 4th consecutive month. Industry deposit growth was stable at 6.4% YoY. Deposits from business enterprises remain subdued while individual deposits gained further traction. As a result of the slightly higher loan growth, LD ratio for the sector in May 2019 rose slightly to 87.6%. Correspondingly, the sector’s loan-to-fund ratio and loan-to-fund and equity ratios increased to 82.2% and 71.8% respectively. CASA ratio climbed to 26.3%. LCR for the sector slipped to 155.0% contributed by lower ratios from commercial and Islamic banking. Nevertheless, it continued to reflect ample liquidity in the system.

• Weighted base rate and average lending rate declined in May 2019 due to the recent OPR cut of 25bps. The sector's weighted base rate and ALR fell 25bps and 17bps to 3.68% and 5.26% respectively in May 2019 due to the recent 25bps OPR cut. BLR dropped 21bps to 6.71%. The average deposit rate (the average rates for FDs of up to 1-year tenure) slipped 23bps to 2.98% in May 2019.

• Lower upticks impaired loans MoM and asset quality ratios (GIL and NIL) for the industry remained stable. The industry’s outstanding impaired loans in May 2019 rose only by 0.8% MoM compared to 3.4% MoM in Apr 2019. Industry’s GIL and NIL ratio remained steady at 1.5% and 0.98% respectively. Loan loss cover fell to 91.7 from 92.7% in the preceding month due to further upticks in impaired loans.

• CET1 and Tier 1 ratios both eased 10bps MoM. The sector's CET1, Tier 1 and total capital ratios were 13.4%, 14.1% and 17.5% respectively.

• 10-year MGS yield stable. The10-year MGS yield was little changed in May 2019.

• Stronger activities for debt capital market with higher issuance of new corporate bonds/sukuk in May 2019. With the stronger debt capital market activities in May 2019, YTD net funds raised in the market by the private sector rose to RM48.9bil, registering an increase of 58.9% YoY. This was a turnaround compared with a contraction of 23.6% YoY for the first 4 months of 2019.

• 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 - 1 Jul 2019