- Increase in construction impaired loans in September 2014. There was a lumpy increase in the construction segment’s impaired loans in the month of September 2014, with the amount rising by nearly RM1bil MoM to RM2.8bil from RM1.8bil in August 2014. This caused the gross impaired loans ratio for this segment to rise to 7.3% in September from 5.0% in August 2014.

- Impact appears to be not material on any particular banks. We do not anticipate a major impact on any particular individual bank. We believe AFG is unlikely to experience any sharp rise in construction impaired loans, given that its exposure to the sector is quite small. It is also most likely not involved in any major construction projects.

- CIMB is unlikely to experience any material increase as well. As for CIMB, we believe that CIMB is unlikely to see any material changes to its construction loans in September 2014.

- Unlikely to see any impact on HLBB either. We also do not expect any major effect on HLBB, given that its exposure to the construction segment is not large. We believe the company is not experiencing any increase that reflects the industry’s trend.

- We do not anticipate any fallout for PBB as well. PBB has already reported it 3Q results, which showed a major improvement in its already negligible level of construction impaired loans to RM5.9mil in end-September 2014 from RM12.8mil in end-June 2014. This led to the construction impaired loans ratio falling further to 0.2% in end-September 2014, from an already low level of 0.4% in end-June 2014. We believe PBB has not seen any worrying trends in construction impaired loans. We also believe that PBB will not experience any major fallout effects from this.

- RHB Cap is also likely to register a steady trend. We believe RHB Cap is also likely to record a steady trend in its construction impaired loans in the recent months, and has not experienced a similar trend to the industry’s.

- Increase likely to be widespread. Thus, the increase appears to be widespread and is not expected to have a material impact on any particular bank. We maintain HOLD on the sector. 

Source: AmeSecurities