- Leading loan indicators remained muted in May 2015. Loans applications declined 2.9% YoY in May 2015, following a flattish performance of only 0.7% YoY in April 2015. Loans approved was flat at 0.6% YoY in May 2015, albeit better than the marginal contraction of -2.4% YoY seen in April 2015. The latest May month indicated generally weaker demand from the household segment, which is likely reflective of post-GST demand trend.

- Slower growth in deposit. Deposit growth continued to retrace to 8.0% YoY in May 2015, from 8.3% YoY in April 2015. This followed an unexpected surge to 9.0% YoY in March 2015. The rise in deposit growth for the industry in March 2015 was largely related to the surge in loan drawdown before GST. These were temporarily placed in shortterm deposits pending utilisation of payments before GST kicked in. Therefore, the trend is expected to have normalised post GST.

- New recent peak for industry LDR. The industry’s loan-to-deposit ratio (LDR) rose to 87.7% in May 2015, from 86.8% in April 2015. This surpassed the recent peak of 87.4% seen in February 2015. This is the seventeenth consecutive month of LDR remaining above 85%.

- Uptick in impaired loans. Gross impaired loans registered an uptick of 2.8% MoM in May 2015, in contrast to the substantial improvement of 4.2% MoM seen in April 2015. The uptick came from both the retail and corporate segments. These are mainly the auto, residential mortgage, non-residential mortgage, construction, working capital and other purposes segments. Gross impaired loans ratio was unchanged at 1.6% in May 2015, compared to 1.6% in April 2015. Loan loss cover remained above 100% – at 100.6% in May 2015 (April 2015: 101.8%).

- Maintain NEUTRAL. The latest May month indicated generally weaker demand from the household segment, which is likely reflective of post-GST demand trend. However, industry LDR continued to creep up, while impaired loans have now registered some upticks. We maintain our sector rating at NEUTRAL.

Source: AmeSecurities Research - 1 Jul 2015