- Leading indications softened further in July. Loans applications growth slid to -8.1% YoY in July 2014, from a positive growth of 4.3% YoY in June 2014. Loans approved growth remained negative at -9.1% YoY in July 2014, vs. -5.5% YoY. The slippage came mainly from the household segment, which may be partly due to the festive holiday effect given there was a long Hari Raya break at the end of July.

- Industry loans growth came off to 8.6% YoY in July 2014 from 9.3% YoY in June 2014. The slower growth came from both the corporate and retail segments.

- Industry’s loan-to-deposit ratio (LDR) eased to 85.5% in July 2014, after the recent high of 85.8% in June 2014. Still, this is the seventh consecutive month of LDR remaining above 85%. To recap, the June 2014’s LDR was a new recent high for the industry. Deposit growth was unchanged at 6.4% YoY in July 2014, compared to 6.4% in June 2014. Thus, with the slower loans growth, this aided in lowering the industry’s LDR.

- Normalisation in the 3-month interbank rate. On a more positive note, the 3-month Klibor had normalised substantially given a 24bps MoM reduction to 3.36% in July 2014, after having shot up to 3.60% in June 2014 during the previous three months.

- Impaired loans improved for the second consecutive month. In addition, gross impaired loans continued to improve by 0.7% MoM in July 2014. The improvement came mainly from a better working capital segment and residential mortgage segments. Gross impaired loans ratio was unchanged at 1.8% in July 2014 vs. 1.8% in June 2014. Loan loss cover was sustained at 104.2% in July 2014, compared to 104.4% in June 2014.

- Maintain NEUTRAL. Revenue indications in July 2014 had slowed down further. Otherwise, there are some bright spots in terms of slightly lower industry LDR, a more normalised 3-month interbank rate, and improved asset quality.

Source: AmeSecurities