Investment Highlights

• Industry loan growth accelerated to 5.8%YoY in Aug 2017 underpinned by a pickup in pace of non-household loans while growth in household loans continued to be stable. Industry loan growth climbed to 5.8%YoY in Aug 2017, after a drop in the previous month to 5.6%YoY. The improvement was contributed by a stronger growth of non-household loans while the household loan growth remained stable. By loan purpose, this was driven by an improvement in pace of working capital loans, personal loans and loans for purchase of securities. Overall households loan continued to be stable with a modest growth of 5.0%YoY. By sector, the stronger industry loan growth was driven by higher growth of loans in the primary agriculture, construction and utilities segments compared to the preceding month. On a year-to-date (YTD) basis up until Aug 2017, industry loans growth improved to 3.5% annualised vs. 3.1% annualised for the first7 months of 2017.

• The level of loan applications continued to climb in Aug 2017 attributed to higher loan demand by households. Compared to July 2017, the level of household loan applications rose in Aug 2017. Nevertheless, this was partially offset by a lower level of non-household loan applications. Growth in the industry's loan applications remained positive at +4.1%YoY vs.+22.9%YoY in the preceding month. Household and non-household loan applications grew by 9.0%YoY and -1.9%YoY respectively in Aug 2017 (July 2017: 28.6%YoY and -16.6%YoY)

• Industry deposits picked up pace with a stronger momentum in business enterprises and individual deposits while CASA ratio remained steady at 26.8%. Industry deposits grew at a higher ratio of 5.0%YoY compared to 4.3%YoY in the previous month. This was supported by stronger growth in both business enterprises’ and individual deposits. YTD industry deposit growth remained modest at 3.8% annualised. CASA ratio for the sector continued to be stable at 26.8%. The sector’s liquidity remained healthy with a steady LD ratio of 89.6%. Meanwhile, banks have diversified funding profiles with the sector's loan-to-fund ratio and loan-to-fund & equity ratio standing at 83.4% and 73.2% respectively. All banks have LCRs of above 100.0%. The LCR for the banking sector of 133.0% as at Aug 2017 was well above the minimum regulatory requirement of 100.0%.

• Weighted base rate and average lending rate inched higher in Aug 2017. The industry’s weighted base rate and lending rate were slightly higher at 3.64% and 5.22% respectively. Interest spread (between the weighted average lending rate and 3-month FD rate) improved 2bps MoM to 2.34%.

• Industry GIL ratio holding up at 1.7%with a decline in impaired loans by 0.5%MoM. No change to the sector’s GIL and NIL ratios at 1.7% and 1.2% respectively in Aug 2017. The industry’s impaired loans declined marginally by 0.5%MoM or RM123mil. The sector loan loss cover was stable at 81.4%.

• Capital market activities stayed active. On a YTD basis up until Aug 2017, net funds raised by the private sector remained significantly higher by 41.2%YoY to RM48.6bil. The impending listing of Sime Darby’s property and plantation units by the end of 2017 bodes well for stronger non-interest income ahead from a more active equity capital market.

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

Source: AmInvest Research - 2 Oct 2017