-  Leading loan indicators rebounded in July. Loans applications rebounded to a growth of 20.7% YoY in July 2013 following declines in the previous two months of 11.5% YoY in June 2013 and 11.5% YoY in May 2013. Loans approved rose by 13.9% YoY in July 2013 (June 2013: -4.3% YoY), which is the first positive growth in three months.

-  Driven mainly by a stronger household segment. The rebound in leading indicators was led by the household segment, with strong recovery in the residential mortgage, auto and non-residential segments for both loans applied and approved. Elsewhere, the corporate segment growth was aided by the construction segment, but this segment tends to be volatile and lumpy in nature. The working capital and other purposes (which include public sector financing) remained weak.

-  Industry loans growth hovering at the 9.0% level. Industry loans growth was sustained at 9.2% YoY in July 2013, compared to +9.0% YoY in June. This would be the third consecutive month of loans growth coming in below 10%, since March 2010.

-  Gross impaired loan recorded an uptick in July 2013. Gross impaired loans reversed into negative trend with a 3.2% MoM uptick in July 2013. The deterioration came mainly from the working capital segment. There were also upticks in the auto and non-residential property segments. Gross impaired loans ratio remained unchanged at 2.0% in July 2013 with higher base effect from loans (June: 2.0%). Loan loss cover came off to 98.0% in July 2013 from 99.8% in June 2013.

-  Maintain neutral. The latest banking statistics were positive in terms of rebound in leading indicators. However, we do not expect these to be sufficiently strong evidence of a sustained growth ahead. The latest indicators affirm our neutral stance on the sector. Our TOP BUY is Public Bank (PBB) as earnings is likely to be the most resilient given its high collateral backing, with average collateral of RM155 for every RM100 of gross loan outstanding in its balance sheet. PBB is now trading at trough valuation similar to that of the 2008 crisis, but the main difference is there are no major capital issue in terms of common equity Tier 1 (CET1) capital ratio this time around. We expect PBB to rerate on:- (a) confirmation of higher CET1 ratios; (b) affirmation of resilient investment and trading income; (c) decent loan growth; (d) ongoing excellent asset quality; (e) rising dividend; and (f) likelihood of little capital raising required ahead.

Source: AmeSecurities