Investment Highlights

• Industry loan growth slowed down to 5.6%YoY in July 2017 due to a slower momentum in non-household loans while growth in household loans remained stable. Industry loan growth declined to 5.6%YoY in July 2017, a drop from 5.7%YoY in June 2017. The slowdown was due to a weaker pace in growth of non-household loans while the overall household loan growth remained stable. By loan purpose, the drop was contributed by a softer momentum for working capital loans, personal loans, credit cards and loans for purchase of non-residential property. Growth in mortgage loans was stable compared to the preceding month. By sector, the slower pace of loans was contributed by the slowdown of loans in the construction, wholesale, retail, restaurants and hotels and utilities sectors. On a year-to-date (YTD) basis, industry loans grew by 3.1% annualised.

• Higher level of loan applications in July 2017. Compared to June 2017, the level of loan applications of both household and non-household rose in July 2017. Growth in the industry's loan applications picked up pace to 22.9%YoY from -15.3%YoY in the preceding month due to higher demand for household and non-household loans. Household and non-household loan applications grew at a higher rate of 28.6%YoY and 16.6%YoY respectively in July 2017 (Jun 2017: -1.8%YoY and -28.1%YoY)

• Stronger growth in industry deposits supported by acceleration in business enterprises and individual deposits while CASA ratio remained stable at 26.9%. Industry deposit growth rebounded to 4.3%YoY after a decline in the previous month. Growth in both business enterprises’ and individual deposits gained traction. CASA ratio for the sector continued to be stable at 26.9%. LD ratio continued to be steady at 89.8% while LCR for the banking sector slipped to 137.0% from 140.0% in Jun 2017 due to lower LCR for commercial and Islamic banks. The sector's loan-to-fund ratio and loan-to-fund & equity ratio was stable at 83.5% and 73.5% respectively.

• No change in weighted base rate and average lending rate. Weighted base rate and lending rate were unchanged at 3.62% and 5.20% respectively. Interest spread (between the weighted average lending rate and 3-month FD rate) improved 5bps MoM to 2.32%.

• Industry GIL ratio inched up to 1.7% again with an increase in impaired loans by 2.5%MoM. GIL and NIL ratios was 1.7% and 1.2% respectively in July 2017 (June 2017: 1.6% and 1.2%). The industry’s impaired loans increased by 2.5%MoM or RM629mil, driven by upticks in impairment of mortgage loans, loans for purchase of securities, HP, personal and working capital loans. Sector loan loss cover slipped to 81.3% in July 2017 from 83.0% in June 2017.

• Capital market activities continued to be active with healthy levels of net funds raised by the private sector. On a YTD basis up until July 2017, net funds raised by the private sector increased significantly by 193.1%YoY to RM48.3bil.

• Maintain OVERWEIGHT with BUYs on RHB Bank and Public Bank. We maintain OVERWEIGHT with BUYs on RHB Bank (FV: RM6.00/share) andPublic Bank (FV: RM22.20/share)

Source: AmInvest Research - 6 Sept 2017