- Loan applications reversed to a negative growth. Loans applications recorded a decline of 4.3% YoY in October 2014, thus reversing the earlier positive gain of 6.7% YoY seen in September 2014. The slowdown was contributed mainly by a major decline in the residential mortgage segment, which contracted 22.2% in October 2014, vs. -2.8% YoY in September 2014. However, loans approved growth was better at 13.1% YoY in October 2014. This was mainly backed by the corporate segment, with the segment’s loans approval posting a second consecutive quarter of robust growth of 36.3% YoY in October 2014 (September 2014: +31.9% YoY).

- Industry’s loan-to-deposit ratio (LDR) stable at 86.6% in October 2014. Deposits growth was better at 6.4% YoY in October 2014, compared to 5.8% YoY in September. This contributed to stable loan-to-deposit ratio (LDR) for the industry at 86.6% in October 2014, compared to a recent peak of 86.8% in September 2014. This is the tenth consecutive month of LDR remaining above 85%.

- More normalised 3-month interbank rate trend. The average lending rate (ALR) declined 5bps MoM in October 2014, thus partly reversing the previous two months of positive increases which amounted to 11bp in total. The total accumulated improvement since the interest rate hike of 25bps effective 10 July 2014 is now only 6bps. The 3-month Klibor rates were however more normalised at 3.36% in end-October 2014, in contrast to the jump to 3.76% in end September 2014 and 3.78% in August 2014.

- Impaired loans stable in September. Gross impaired loans recorded a marginal improvement given a RM222.6mil drop in absolute balance. This follows a large MoM increase of RM728.5mil in September 2014. Gross impaired loans ratio improved marginally to 1.7% in October 2014, if compared to 1.8% in September 2014. There was some improvement in the working capital segment. Loan loss cover had also strengthened to 103.8% in October 2014, vs. 102.2% in September 2014.

- Maintain NEUTRAL. Revenue indications in October continued to be mainly backed by the corporate segment. In addition, there was some normalisation in the interbank rates. Gross impaired loans had shown a marginal improvement. Thus, industry trends appear to have stabilised in October. We remain NEUTRAL on the sector.  

Source: AmeSecurities