Investment Highlights

• Industry loan growth moderated to 5.2%YoY in Sept 2017 contributed by a slowdown in non-household loans while growth in household loans continued to be stable. Industry loan growth eased to 5.2%YoY in Sept 2017 vs. 5.8%YoY in Aug 2017, underpinned by a slowdown in growth of non-household loans while the household loan growth remained stable. Sept 2017 saw a slower growth in working capital loans. Overall, households loan continued to be stable with a modest growth of 5.0%YoY. Growth in mortgage loans continued to hold up while that of HPs remained subdued. On a year-to-date (YTD) basis up until Sept 2017, industry loans growth continued to be slow at 3.5% annualised against our expectation of a 5.0-6.0% growth for 2017.

• Growth in loan applications moderated but stayed positive with lower levels of loan demand from households and non-households. Growth in the industry loan applications fell to 0.3%YoY in Sept 2017 vs. 4.1%YoY in Aug 2017. The level of loan applications of household and nonhousehold loan applications declined in Sept 2017 compared to the preceding month. Growth in household and non-household loan applications slipped to 3.1%YoY and -8.9%YoY respectively in Sept 2017 (Aug 2017: 9.0%YoY and -1.9%YoY)

• Moderation in industry deposit growth with a stronger momentum in business enterprises’ deposits offset by a weaker growth in individual deposits. Industry deposits slipped to a slower growth of 4.5%YoY compared to 5.0%YoY in the previous month. Sept 2017 saw a stronger growth in business enterprise deposits offset by weaker individual deposits growth. YTD industry deposit growth remained modest at 4.3% annualised. CASA ratio for the sector continued to be stable at 26.7%. The sector’s liquidity improved slightly with a lower LD ratio of 89.1% compared to 89.6% in the preceding month. Banks have diversified funding profiles with the sector's loan-to-fund ratio and loan-to-fund & equity ratio standing at 83.1% and 73.1% respectively. All banks have LCRs of above 100.0%. The LCR for the banking sector of 136.0% as at Sept 2017 was well above the minimum regulatory requirement of 100.0%.

• Weighted base rate and average lending rate holding up in Sept 2017. The industry’s weighted base rate and lending rate was stable at 3.63% and 5.22% respectively. Interest spread (between the weighted average lending rate and 3-month FD rate) eased 4bps MoM to 2.29%.

• Industry GIL ratio remained at 1.7% with the absolute level of impaired loans rising by only a marginal 0.2%MoM. No change to the sector’s GIL and NIL ratios at 1.7% and 1.2% respectively in Sept 2017. The industry’s impaired loans rose marginally by 0.2%MoM or RM43mil. GIL ratios for loans to all sectors were stable in Sept 2017. The sector loan loss cover eased slightly to 81.2%, due to the marginal increase in impaired loans.

• Capital market activities continued to be active with higher issuance of bonds in Sept 2017. The level of net funds raised in the market by the private sector rose in Sept 2017 to RM13.3bil vs. RM272mil in the previous month, led by higher issuances of bonds. On YTD basis up until Sept 2017, net funds raised by the private sector increased by 66.4%YoY to RM61.9bil.

• Healthy capital ratios. CET1, Tier 1 and total capital ratio for the banking sector was stable at 13.2%, 14.1% and 17.1% respectively.

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

Source: AmInvest Research - 1 Nov 2017