Investment Highlights

• Industry loan growth further moderated to 4.6%YoY in Oct 2017 from 5.2%YoY in Sept 2017 contributed by a slowdown in non-household loans while growth in household loans continued to be stable. Growth of non-household loans slipped to 4.0%YoY vs. 5.4%YoY in the preceding month while the household loan growth remained stable at 5.1%YoY. On a year-to-date (YTD) basis up until Oct 2017, industry loans growth continued to be slow at 3.52% annualised against our expectation of a 5.0-6.0% growth for 2017. With an improvement in loan demand, we expect a pickup in loan growth in the remaining months of 2017. Post-3Q2017 results, the larger banks like Maybank has lowered its loan growth guidance to 3.0% while CIMB hinted of that its loan growth target of 7.0%, which would be a tall order for 2017. We expect the industry in 2017 to end at the lower end of our 5.0-6-0% projected growth.

• Growth in loan applications improved to 12.8%YoY with higher level of both household and non-household loan applications in Oct 2017. Growth in household and non-household loan applications increased to 12.2%YoY and 3.5%YoY respectively in Oct 2017 (Sept 2017: 3.1%YoY and - 2.6%YoY respectively)

• Industry deposits picked up pace, and grew modestly by 4.8%YoY with a stable growth in business enterprises’ deposits and marginal increase in individual deposit growth. CASA ratio for the sector rose 20bps to 26.9%. The sector’s liquidity improved slightly with stronger deposit growth, resulting in a lower LD ratio of 88.7%. Banks’funding profiles remain diversified with the sector's loan-to-fund ratio and loan-to-fund & equity ratio standing at 83.0% and 72.9% respectively.LCR for the sector improved to 138.0% from 136% in the preceding month, andstayed well above the minimum regulatory requirement of 100.0%.

• Weighted base rate and average lending rate remained stable at 3.63% and 5.21% respectively. Interest spread (between the weighted average lending rate and 3-month FD rate) eased 2bps MoM to 2.27%.BNM's tone has turned hawkish after the recent monetary policy meeting in November. The central bank hinted that the strong economic growth locally and abroad may prompt it to review the degree of monetary accommodation. This implies a potential revision of 25-50bps to the OPR in 2018. If this occurs, it would have a temporary positive impact on banks' NIM as loans will be repriced higher, adjusting to the hike in OPR ahead of deposit rates.

• Industry GIL ratio improved to 1.6% from 1.7% with the absolute level of impaired loans declining by 1.0%MoM. Industry NIL ratios remained at 1.2%. GIL ratios for loans to all sectors remained stable. The sector loan loss cover improved to 82.1% from 81.2% in September 2017.

• The level of net funds raised by the private sector remained healthy with a higher issuance of bonds than equities in Oct 2017. On a YTD basis up until Oct 2017, net funds raised by the private sector was RM74.3bil, an increase of 72.3%YoY.

• Healthy capital ratios. CET1, Tier 1 and total capital ratios for the banking sector were stable at 13.3%, 14.1% and 17.1% respectively.

• 3Q17 results of all banks came in within expectation. The earnings of six banks (Maybank, Public Bank, RHB Bank, Hong Leong, CIMB and ABMB) came in within expectations while that of AMMB were within consensus estimate. Industry loans growth picked up pace to 0.9%QoQ in 3QCY17 compared to -0.1%QoQ in 2QCY17, while the overall loan of banks covered grew at circa 5.0%YoY.

• We maintain OVERWEIGHT on the sector. Our BUY calls are on RHB Bank (FV: RM6.00/share), Public Bank (FV: RM22.20/share) and CIMB (FV: RM6.60/share).

Source: AmInvest Research - 5 Dec 2017