- Leading indications improved in August… Loans applications growth improved to 9.4% YoY in August 2014, after registering a growth of -8.1% YoY in July 2014 Loans approved growth also recovered to a positive growth of 5.9% YoY in August 2014 (July 2014: -9.1% YoY), following four consecutive months of decline.

- …driven mainly by the working capital segment. Both loan applications growth and approvals growth were mainly driven by the strong working segment. Otherwise the household segment remains relatively muted, although there was some recovery in August. This reinforces our view that the slippage seen in July 2014 may have been partly due to the festive holiday effect given the long Hari Raya break at the end of July.

- Industry’s loan-to-deposit ratio (LDR) at a new recent high of 86.3% in August 2014. Industry’s loan-to-deposit ratio (LDR) hit a new recent high of 86.3% in August 2014, compared to 85.5% in July 2014. This surpassed the recent peak of 85.8% achieved in June 2014. This is the eighth consecutive month of LDR remaining above 85%.

- 3-month interbank rate moved higher, likely on expectations of another rate hike. The 3-month Klibor spiked up substantially though by 42bps MoM to 3.78% in August 2014, compared to 3.36% in July 2014. BNM said short-term interbank rates (one month and less) were stable in August 2014. Long-term interbank rates, however, trended higher due to increased expectation for a further Overnight Policy Rate (OPR) increase in the second half of the year.

- Impaired loans improved in August. Gross impaired loans improved further by 0.3% MoM. Gross impaired loans ratio came in lower at 1.7% in August 2014 vs. 1.8% in July 2014. Loan loss cover strengthened marginally to 104.8% in August 2014, from 104.2% in July 2014.

- Maintain NEUTRAL. Revenue indications have somewhat recovered in August 2014 but interbank movement is relatively more volatile while industry LDR remains elevated. We remain NEUTRAL on the sector.

Source: AmeSecurities