Investment Highlights

• Industry loan growth rose to 3.9% YoY in Dec 2019 (Nov: 19: 3.7% YoY) and was slightly lower than our expectation of a 4.0–5.0% growth for 2019. The improvement was contributed by a stronger non-household loan growth of 2.7% YoY (Nov 2019: 2.4% YoY) while the household loan growth remained stable at 4.7% YoY. Disbursements for non-household loans outpaced repayments in Dec 2019. For 2020, our loan growth projection is unchanged at 4.0% against a GDP growth assumption of 4.6%.

• Decent growth in loan applications and approvals in Dec 2019. Dec 2019 saw a stronger growth in loan applications from households. Meanwhile, approvals for both household and non-household loans picked up pace.

• Deposits gained traction with improvement on growth of deposits from individuals and business enterprises. Industry deposit growth rose to 2.9% YoY in Dec 2019 vs. 2.6% YoY in Nov 2019. Growth of deposits from both individuals and business enterprises improved in Dec 2019. Corresponding with the improvement loan growth, LD ratio for the sector eased to 88.6% in Dec 2019. Industry CASA growth surged to 6.7% YoY in Dec 2019 vs. 5.5% YoY in Nov leading to a higher CASA ratio of 26.5%.

• Stable weighted average lending rate and base rate. The sector's weighted base rate and average lending rate were unchanged at 3.68% and 5.16% respectively. Also, the BLR remained at 6.71%. Interest spread (difference between weighted average lending rate and average FD rate) was sustained at 2.20% in Dec 2019.

• Lower impaired loans and provisions. The industry’s outstanding impaired loans in Dec 2019 fell by 4.6% MoM or RM1.29bil. By loan purpose, the decline was largely driven by lower impairment of loans for purchase of transport vehicles, personal, construction and working capital loans. Nevertheless, the industry’s total GIL decreased slightly to 1.5% while NIL ratio was reduced to 0.96% vs 1.02% in the previous month. Total provisions for the sector fell by 4.4% MoM or RM1.1bil.

• Higher CET1 ratio by 10bps MoM. The sector's CET1 climbed by 10bp MoM to 13.8% with the increase in retained earnings from banks’ half yearly profits. Meanwhile, Tier 1 capital and total capital ratio increased 20bps and 30bps MoM to 14.4% and 17.9% respectively.

• 10-year MGS yield slipped by 11.6bps MoM. Market indicative yield for 10-year MGS slid by 11.6bps MoM to 3.31%.

• Higher new issuance of bonds/sukuks in Dec 2019 but dampened by rise in redemptions, resulting in lower net funds raised by the private sector. YTD net funds raised in the market by the private sector were RM45.7bil, registering a decline of 6.8% YoY. Dec 2019 saw higher new issuance for bonds/sukuks while equity capital market activities continued to be soft. Nevertheless, these were offset by a rise in the redemptions of bonds/sukuks in Dec 2019.

• Maintain OVERWEIGHT on the sector as valuation and dividend yields of banks remain compelling. Our top picks are Maybank (FV: RM9.70/share), RHB Bank (FV: RM6.50/share) and Hong Leong Bank (FV: RM18.90/share)

Source: AmInvest Research - 3 Feb 2020