- Leading loan indicators slower due to holiday season in February, after a revival in January. Loans applications recorded a negative growth of -9.4% in February 2013 following a 10.9% growth in January. Loans approved growth also registered a decline at -1.2% compared to a growth of 6.2% in January. We believe this was due to a shorter working period in February 2013, due to the Chinese New Year holidays.

- Some recovery in the corporate segment. For the corporate segment, loans applied recovered somewhat to a narrower contraction of -4.7%, after larger declines in the previous two months at -33.2% in January and -38.0% in December 2012. Corporate loans approved growth was also better at a flat -0.6%, after large decelerations at -48.5% in January and -45.0% in December. Considering the short working month, the rate of decline was relatively mild.

- Gross impaired loans recorded second consecutive MoM marginal uptick. Gross impaired loans continued to rise on a MoM basis, by RM185mil or 0.8% in February 2013. This was the second consecutive month of increase. We believe this was again likely due to the seasonally slower repayment trend in the beginning of the year. The increase was again contributed mostly by the household or retail segment. These are the auto, residential mortgage, non-residential mortgage, credit card and consumer durables segments. For the corporate segment, the working capital segment registered an increase, while the construction segment has now improved following an uptick in January.

- Stable gross impaired loans ratio. However, gross impaired loans ratio remained unchanged at 2.0% vs. the same in January. Loan loss cover was still high at 98.5% in February (January: 99.0%). Given the low NPL ratio and high loan loss cover, as well as the likely seasonal factors, we do not expect the upticks to be a major cause of concern at this point.

- Maintain overweight. We believe that the leading indicators’ contraction rates are relatively mild, with declines coming in at relatively small rates considering the shorter working period due to the Chinese New Year season. Our top picks are AFG, CIMB and RHB Cap.

Source: AmeSecurities