Investment Highlights

• Softer industry loan growth of 4.2% YoY in June 2019 (May 2019: 4.5% YoY) underpinned by slower household and nonhousehold loan growth. The industry loan growth moderated to 4.2% YoY. Non-household loan growth slipped to 3.3% YoY vs. 3.7% YoY in May 2019 while household loan growth dipped slightly to 4.9% YoY vs. 5.1% in the previous month. Nevertheless, on a YTD annualised basis, total industry growth was better at 2.6% vs. 2.1% annualised for the first 5 months of 2019 as reported in May 2019 statistics.

• Loan applications and approvals slowed down after a strong showing in April and May 2019. Both household and non-household loan applications and approvals were softer in June 2019.

• Stable CASA ratio albeit slightly slower CASA growth. Industry deposit growth was lower at 5.1% YoY compared with 5.6% YoY in May 2019, and it continued to outpace loans. Deposits from business enterprises remained subdued, registering a growth of only 0.5% YoY while individual deposit growth moderated to 5.7% YoY vs. 5.9% YoY in May 2019. LD ratio for the sector in June was 88.2%. Correspondingly, the sector’s loan-to-fund ratio and loan-to-fund and equity ratios increased slightly to 82.6% and 72.2% respectively. Liquidity in the system remained ample.

• Lower average lending rate but no change in weighted base rate. The sector's weighted base rate remained at 3.68%. However, the weighted average lending rate fell slightly to 5.23% vs. 5.26% in May 2019. No change to BLR at 6.71%. The average deposit rate (the average rates for FDs of up to 1-year tenure) continued to hold up at 2.97%. Interest spread (the difference between weighted average lending rate and average FD rate) was stable at 2.27% in June 2019 (May 2018: 2.28%)

• Slight increase in GIL ratio to 1.6% but asset quality remained stable. The industry’s outstanding impaired loans in June 2019 increased by 2.8% MoM from May 2019’s 0.7% MoM rise. The increase was mainly contributed by upticks in impairments of residential property and working capital loans. The industry’s total GIL rose slightly to 1.6% from 1.5% in May 2019 while net GIL ratio climbed slightly to 1.02% from 0.98% in the previous month. The sector’s loan loss cover slipped further to 91.1% from 94.1% in the preceding month due to the upticks in impaired loans.

• Stable CET1 and Tier 1 ratios. The sector's CET1, Tier 1 remained at 13.4%, 14.1% while total capital ratio slipped 10bps MoM to 17.4%.

• Lower 10-year MGS yield. Market indicative yield for the 10-year MGS declined by 15.5bps to 3.64%.

• Slower debt capital market with lower issuance of new corporate bonds/sukuk in June 2019. Despite softer June activities for capital markets, YTD net funds raised in the market by the private sector were still higher at RM47.7bil, registering an increase of 43.6% YoY. YTD net issuance of corporate bonds/sukuks rose by 32.3% YoY to RM42.9mil although the numbers were softer in June 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 - 2 Aug 2019