Investment Highlights

• Industry loans picks up pace slightly to 4.2%YOY with a stronger household loan growth. The sector’s loan growth rose to 4.2%YoY in Jan 2018, from 4.1%YoY in Dec 2017. This was contributed by a stronger household loan growth while non-household loans slowed down slightly. Jan 2018 saw household loan growth rising to 5.3%YoY compared to 5.1%YoY in Dec 2017. The improvement was contributed by a stronger pace of loans for purchase of securities, personal loans and credit cards. Meanwhile, non-household loan growth eased to 2.7%YoY from 2.8%YoY in the preceding month. The slowdown was due to a slippage in the year-on-year growth of working capital loans to 0.8%YoY (Dec 17: 0.9%YoY). On a yearto-date (YTD) basis, industry loan growth was5.5% annualised. We maintain our loan growth projection of 5.0% for 2018 with expectation of an improvement in corporate loans while household loan growth is expected to remain stable.

• Higher growth of loan applications supported by an increase in loan demand from households and non-households. Jan 2018 saw an increase in the YoY growth of industry loan applications to 25.2% vs. -2.1% in Dec 2017. Household and non-household loan applications grew 26.2%YoY and 24.6YoY respectively in Jan 2018 (Dec 2017: 6.8%YoY and -12.5%YoY). By loan purpose, the increase was broad-based.

• Industry deposits growth in Jan 2018 accelerates to 4.4%YoY, up from 4.1%YoY in Dec 2017. This was contributed by a stronger growth in business enterprise deposits. Business enterprise deposit growth expanded to 9.4%YoY while individual deposits slipped to 2.9%YoY vs. 3.9%YoY in the preceding month. Industry CASA growth slowed down to 8.5%YoY vs. 9.4%YoY in Dec 2017. CASA ratio for the sector continued to hold up at 27.8%. Growth in the more expensive FDs accelerated for the third consecutive month to 4.5%YoY. Industry LD ratio remained stable at 89.6%while loan to fund ratio and loan to fund and equity ratio fell 40bps and 80bps MoM to 83.6% and 72.9% respectively.

• Weighted ALR and base rate for commercial banks rises to 5.27% and 3.76% respectively due to the OPR hike of 25bps in Jan 2018. Weighted ALR and base rate for commercial banks rose to 5.27% and 3.76% respectively. Meanwhile, BLR increased to 6.74% from 6.68% in the previous month. The rise in rates was due to the increase in OPR by 25bp to 3.25% in Jan 2018.Interest spread (between the weighted average lending rate and 3-month FD rate) slid 2bps MoM to 2.25%.

• Industry GIL ratio stable at 1.5% with a marginal increase in impaired loans by 0.6%MoM. No change to the sector’s GIL ratio at 1.5% while NIL ratio improved to 0.92% vs. 1.1% in the preceding month. The industry’s impaired loans were marginally higher by 0.6%MoM or RM147mil in Jan 2018.The sector’s loan loss cover improved to 97.5%

• Capital market activities continue to be active with higher issuance of new bonds and sukuks than equities. The level of net funds raised in the market by the private sector was higher in Jan 2018 at RM6.83bil compared to RM106mil in Jan 2017. New issues of corporate bonds/sukuk were healthy at RM9.53bil in Jan 2018 vs. RM1.58bil in Jan 2017. Meanwhile, new issuance of shares remained low at RM101mil in Jan 2018.

• Higher yields for MGS due to the increase in OPR.Market indicative yields for 3-, 5- and 10-year MGS rose by 5.0, 5.2 and 4.2bps respectively in Jan 2018 due to the increase in OPR by 25bps.

• Maintain OVERWEIGHT with BUYs on RHB Bank, Public Bank and Alliance Bank. We maintain OVERWEIGHT with BUYs on RHB Bank (FV: RM6.30/share), Public Bank (FV: RM24.30/share) and Alliance Bank (FV: RM4.40/share).

Source: AmInvest Research - 5 Mar 2018