-  Leading loan indicators showed a diverging trend in December 2014. Loans applications had improved significantly to 15.1% YoY in December 2014, against a flattish growth of 0.1 % YoY in November 2014. In contrast to the better loan applications growth numbers, loans approved growth was somewhat muted at 2.1% YoY in December 2014, lower than the 10.8% YoY growth rate seen in November 2014. Bank Negara Malaysia (BNM) said overall loan demand had moderated due mainly to large corporations while loan applications from SMEs remained relatively stable. Household loans demand remains muted.

-  Industry’s loan-to-deposit ratio (LDR) had eased off to 86.2% in December 2014. Deposits growth was slightly lower at 7.5% YoY in December 2014, compared to 7.8% YoY in November 2014. However, given the slower loans growth, the industry’s loan-to-deposit ratio (LDR) had eased slightly to 86.2% in December 2014, compared to 86.6% in November 2014. Still, this is the twelfth consecutive month of LDR remaining above 85%.

-  Ongoing upward trend in the 3-month interbank rate. The average lending rate (ALR) remained stable (+2bps MoM) at 4.67% in December 2014 compared to 4.65% in November 2014. The total accumulated improvement since the interest rate hike of 25bps effective 10 July 2014 is now only 5bps. As for interbank rates, the 3-month Klibor rates had continued to move up by 12bps MoM to 3.96% in December 2014, against 3.84% in November 2014

-  Impaired loans improved further in December. Gross impaired loans continued to improve on a MoM basis in December 2014, with the improvement contributed by the working capital segment. Gross impaired loans ratio was unchanged at 1.7% in December 2014 compared to 1.7% in November 2014. Loan loss cover was strengthened to 106.3% in December 2014 compared with 103.3% in November 2014.

-  Maintain NEUTRAL. Revenue indications in December were again supported by the corporate segment. Asset quality was stable. However, costs in terms of interbank rates continued to rise despite the stable LDR, which indicate ongoing NIM pressure. We maintain our sector rating at NEUTRAL.

Source: AmeSecurities