-  Leading loan indicators better in April. Loans applications came in weaker-than-expected with a decline of 12.0% YoY in May 2013, after a short climb into positive growth of 5.9% in April 2013. Loans approved growth has also weakened to -16.9% YoY in May, after a positive growth of 7.3% in April 2013.

-  Slower leading indicators due to other purposes segment (which includes public sector financing) and auto segment. Closer scrutiny reveals that the slower leading indicators was due mainly to the other purposes’ segment, which includes elements of public sector spending, as well as the auto segment. This is likely due to consumer adopting a wait-and-see approach based on expectations of lower car prices with possible policy changes arising from the general election promises.

-  Working capital and construction provided some bright spots in private sector demand. In contrast, the private sector demand is stronger, as indicated by better working capital loans approved growth of 22.4% YoY in May vs 7.6% in April, as well as stronger construction loans applied growth (May: 58.7%, April: 14.3%) and approved (May: 90.1%, April: -61.1%).

-  Industry loans growth came in at 9.3% in May (April: 10.5%). This would be the first time loans growth came in below 10% since March 2010 but we believe this is not a major surprise given the slower leading indicators over the past few months.

-  Gross impaired loans continued to rise for a second consecutive month at 1.9% MoM in May (April: 0.2% MoM increase in April). The upticks are more widespread, with new increases seen in the residential mortgages and nonresidential mortgages. However, the increases are still mostly marginal, except for the other purposes segment. The other purposes’ segment recorded a spike of 14.5% MoM, taking the gross impaired loans ratio for this segment upwards to 1.7% from 1.5%. We would view this as still being relatively low. Overall gross impaired loans ratio remained unchanged at 2.0% in May compared to 2.0% in April. Given stable gross impaired loans ratio, we would view the increase as being generally in tandem with a rising loan base. Loan loss cover is still resilient at 99.2% in May, compared to 100.3% in April.

-  Maintain overweight. Our sector rating is still OVERWEIGHT, while our top picks are CIMB, RHB Cap and MBSB.  

Source: AmeSecurities