- Improved leading indicators. Loans applications growth improved to 8.5% YoY in February 2014, in contrast to the -14.8% YoY drop seen in January 2014. This was driven mainly by the lumpy construction segment. Loans approved was also better at +9.5% YoY in February 2014, compared to the flat -0.1% YoY growth recorded in January 2014. Main drivers to the loans approved growth was the non-residential mortgage loans segment, and the other purposes segment.

- Industry LDR remained above 85%. Deposits growth came in at 7.0% YoY in February 2014, slightly lower than the revised 7.2%YoY growth in January 2014. Industry’s loan-to-deposit ratio (LDR) was unchanged at 85.5% in February 2014 (January 2014: 85.5%), the second consecutive month that it remained above 85% in more than ten years since January 2004’s 85.9%.

- 3-month interbank rate surpassed 3.30%. The 3-month Klibor has increased further to 3.31% as at end-February 2014, from 3.28% in January 2014, although this is still below the recent high of 3.42% in December 2013. This means that Klibor has remained above 3.20% for the fourth consecutive month, if compared to earlier 3.10% range a few months ago.

- BNM reduced maximum tenure of its Range Maturity Auction operations from 3 to 2 months. In the press release for February 2014’s Monetary and Financial Developments, BNM said that interbank rates were stable in February. BNM further said that it has reduced the maximum tenure of its Range Maturity Auction (RMA) operations from 3 to 2 months. BNM said that shorter maturity will allow banks’ surplus liquidity with BNM to mature more frequently, thereby ensuring that it can be drawn upon during periods of anticipated capital outflows. While placement between banks was stable compared to previous months, the absence of trade with BNM at the 3-month maturity resulted in a higher average 3-month interbank rate.

- Maintain NEUTRAL. Leading indicators has improved in February 2014 following a weak start in January 2014. There may be some seasonal effects still, given the difference in timing for the festive Chinese New Year holidays this year which came in at the end of January this year, compared to mid-February last year. Despite the improvement, leading indicators are still not sufficiently robust to justify a loans growth upgrade, in our view. Further, industry LDR remains above 85%. We maintain our sector rating at NEUTRAL. 

Source: AmeSecurities