Investment Highlights

• Industry loans expands at a faster rate of 4.5%YoY with an increase in household and non-household loan growth. The sector’s loans expanded by 4.5%YoY in Feb 18 compared to 4.2%YoY in Jan 2018. This was supported by both higher household and non-household loan growth. Feb 2018 saw household loans accelerated to 5.6%YoY from 5.3%YoY in Jan 2018. The improvement was contributed by a stronger pace of loans for purchase of securities, personal loans and credit cards. Mortgage loan growth continued to be stable. Meanwhile, non-household loan growth climbed to 3.1%YoY from 2.7%YoY in the preceding month. Growth in working capital loans was stable at 0.7%YoY (Jan 2018: 0.8%YoY) while that for construction purposes surged to 7.9%YoY (Jan 2018: 4.7%YoY). On a year-to-date (YTD) basis, industry loan growth was 4.5% annualised. It was on track to meet our projection of 5% loan growth in 2018 on the back of a 5.5% GDP growth.

• Slower pace of loan applications. Feb 2018 saw a slowdown in the growth of industry loan applications to -5.8%YoY compared to 25.5% in Jan 2018. Growth in household and non-household loan applications was slower at -4.6%YoY and -7.2YoY respectively in Feb 2018 (Jan 2018: 26.2%YoY and 24.6%YoY). By loan purpose, the slowdown was broad-based.

• Slowdown in deposit growth with a slight drop in industry CASA ratio. Industry LD ratio stayed at 89.7%. The banking sector deposits’ growth slipped to 4.2%YoY, down from 4.4%YoY in Jan 2018. Growth in individual deposits gained traction to 3.2%YoY (Jan 2018: 2.9%YoY) but this was dampened by a slower growth in business enterprise deposits of 8.9%YoY (Jan 2018: 9.4%YoY). Loan-to-fund ratio and loan-to-fund and equity ratio remained stable at 83.5% and 72.9% respectively. Industry CASA growth continued to slowdown for the 2nd consecutive month to 6.3%YoY compared to 8.5%YoY and 9.4%YoY in Jan 2018 and Dec 2017 respectively. Owing to the slower CASA growth, CASA ratio for the sector fell to 27.6% (Jan 2018: 27.8%). The sector’s LCR improved to 134.0% above the transitional regulatory requirement of 90% in 2018 which will be raised eventually to 100% in 2019.

• Weighted base rate and average lending rate continue to trend higher. Post-OPR hike of 25bps in January, the sector's weighted ALR and base rate for commercial banks continued to rise to 5.41% in Feb 2018 (Jan 2018: 5.27%) and 3.89% (Jan 2018: 3.76%) respectively. Meanwhile, BLR increased to 6.90% from 6.74% in the previous month. The average deposit rate (the average rates for FDs of up to 1-year tenure) climbed to 3.22% from 3.06% in Jan 2018 owing to a repricing of deposit rates following the increase in OPR. The repricing of deposits is likely to continue in the near term as the bulk of banks' deposits is less than 6 months in tenure. Interest spread (using the difference between the weighted average lending rate and 3-month FD rate as proxy) remained at 2.25%.

• Industry GIL ratio inches up to 1.6% with a marginal increase in impaired loans by 0.8%MoM. NIL ratio was slightly higher at 0.94% vs. 0.91% in the preceding month. The sector’s loan loss cover was 97.2%.

• Capital market activities continue to be active with a growth in net outstanding issuance of corporate bonds by 16.4%. Cumulative net funds raised in the market by the private sector was higher in the first two months of 2018 at RM10.1bil vs. RM3.1mil in the corresponding period in 2017.Yeartodate, new issues of corporate bonds/sukuk were healthy at RM9.96bil vs. RM2.08bil in the initial 2 months of 2017.

• Maintain OVERWEIGHT with BUYs on RHB Bank, Public Bank, Alliance Bank and BIMB Holdings. We maintain OVERWEIGHT with BUYs on RHB Bank (FV: RM6.30/share), Public Bank (FV: RM24.30/share), Alliance Bank (FV: RM4.40/share) and BIMB Holdings (FV: RM4.80/share).

Source: AmInvest Research - 2 Apr 2018