Investment Highlights

• Industry loans growth slips to 4.4%YOY due to slower non-household loan growth while growth in household loans remains stable. The sector’s loan growth decelerated to 4.4%YoY in March 2018, from 4.5%YoY in Feb. This was contributed by a slower non-household loan growth while growth in household loans remained steady. Growth in working capital loans shrank to 0.3%YoY (Feb 18: 0.7%YoY)

    On a year-to-date (YTD) basis, industry loan growth was an annualised 4.8%. It remained was on track to meet our projection for a 5% loan
    growth in 2018 on the back of a GDP growth of 5.5%.

• Slight improvement but loan applications still slow for the sector. March 2018 saw an improvement in the growth of industry loan applications to 0.02%YoY vs. -5.8%YoY in Feb. Growth in non-household loan applications picked up pace to 11.4%YoY in March 2018 compared to -7.2YoY in Feb. Meanwhile, growth in household loan applications slipped further to -8.1%YoY. By loan purpose, growth in loan applications for personal loans and working capital rose compared to the previous month.

• Stronger deposit growth resulting in a lower LD ratio. With a stronger deposit growth, industry LD ratio improved to 88.5%. The banking sector's deposit growth strengthened to 5.2%YoY from 4.2%YoY in Feb 18. Growth in individual deposits rose slightly to 3.3%YoY (Feb 18: 3.2%YoY) while that of business enterprises climbed to 12.4%YoY vs. 8.9%YoY in Feb 18. The sector’s loan-to-fund ratio and loan-to-fund and equity ratios improved to 82.4% and 72.0% respectively.

• No change in weighted base rate but weighted average lending rate is slightly higher. The sector's weighted ALR rose 2bps to 5.43% while base rate was unchanged at 3.89%. BLR remained at 6.90%. The average deposit rate (the average rates for FDs of up to 1-year tenure) was steady at 3.21%. Interest spread (using the difference of the weighted average lending rate and 3-month FD rate as proxy) was up slightly to 2.27% due to higher weighted ALR.

• Industry GIL ratio for the sector remains stable at 1.6% despite upticks in impairments for first 3 months of 2018. The industry’s impaired loans continued to rise for the 3rd consecutive month. It increased by 1.8%MoM or RM441mil in March 2018, due to upticks in impairment of loans for purchase of residential and non-residential property, construction and working capital loans. This was due to the refining of bank’s methodologies for the implementation of MFRS 9 which resulted in an increase in provisions. Notwithstanding that, the industry’s total GIL remained steady at 1.6% while the NIL ratio continued to inched up to 0.99% from 0.94% and 0.91% in Feb and Jan 2018 respectively.

• Capital market activities continue to be more active in bonds than equities. Cumulative net funds raised in the market by the private sector was RM20.4bil in the first 3 months of 2018 compared to RM23.9bil in the corresponding period in 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 - 3 May 2018