- Four out of seven banks performed above expectations. Four out of seven banks managed to outperform market expectations in the recently reported quarter. They are CIMB, HLBB, Maybank and RHB Cap. Sector net earnings slid 2.6% QoQ in 4Q13, following a strong 10.4% QoQ growth in 3Q13. This is mainly due to marked-to-market unrealised losses on securities portfolio for the banks. The other reason was the absence of low loan loss provisioning and writebacks enjoyed by RHB Cap in 3Q, which did not recur in 4Q.

- Higher LDR for the sector in 4Q. Almost all the banks reported higher LDR across the board in 4Q13. For the banks under our coverage, we estimate sector LDR to have increased to 88.5% in 4Q13, from 87.1% in 3Q13.

- Intensified price competition in the deposit market. The key message from most banks’ results briefings for this quarter was an intense price competition in the deposit market towards the end of 2013. We suspect that it was related to domestic cash rich corporates’ short-term fixed deposit placements. Both AFG and HLBB hinted that LDR were allowed to move up as they had strategically withdrawn from price competition in the deposit segment.

- Improved impaired loans came mainly from chunky write-offs. Total gross impaired loans for the banks declined substantially by 5.6% QoQ in 4Q13 (3Q13: -1.1% QoQ). Maybank indicated that it has converted a debt into securities for one of its impaired loan, which helped to reduce its gross impaired loan amount. Impaired loan written offi increased substantially in 4Q13 to RM2,047.2mil, almost double of 3Q13’s RM1,184.1mil. The chunky write-offs contributed to the bulk of the impaired loans improvement in 4Q.

- Maintain NEUTRAL. The latest results indicate rising LDR, with key new information being most banks hinting at rising price pressure in the deposit market. Our net earnings growth assumption for the sector is relatively unchanged, but we now forecast growth at 2.3% for 2014 and 5.0% for 2015, calendar year basis - based on higher net earnings base for 2013. Our sector net earnings growth forecast is below consensus’ 8.0% YoY growth for 2014. Our sector loans growth assumption from a bottom-up approach is relatively unchanged at 8.2% for 2014 and 8.3% for 2015. Our sector NIM assumption is -6bps YoY for FY14, and a stable NIM for FY15. Our non-interest income growth assumption is 8.5% for 2014 and 7.1% for 2015. We are maintaining sector credit costs assumptions for the banks at 37bps for 2014F and 27bps for 2015F. We maintain our cautious stance on the sector.

Source: AmeSecurities