- Leading loan indicators improved in June 2015. Loans applications growth remained soft at 2.4% YoY in June 2015, but it was an improvement from the decline of 2.9% YoY seen in May 2015. Loans approved growth registered a significant improvement though to 15.1% YoY in June 2015, from a flattish 0.6% YoY in May 2015. June 2015’s leading indicators were mainly backed by the corporate segment. Elsewhere, the household segment remained soft, which is likely reflective of post-GST implementation demand trend.

- Deposit growth softened. Deposit growth softened to 7.7% YoY in June 2015, from 8.0% YoY in May and 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 implementation. These were temporarily placed in short-term deposits pending utilisation of payments before GST kicked in. Therefore, we think that the trend is now normalising post GST implementation.

- Ongoing increase in industry LDR. The industry’s loan-to-deposit ratio (LDR) climbed further to a new recent peak of 88.0% in June 2015, from 87.7% in May 2015. This is the highest level since August 2003’s estimated 88.5%. This is the eighteenth consecutive month of LDR remaining above 85%.

- Second consecutive month of upturn in impaired loans. Gross impaired loans continued to climb by 5.7% MoM in June 2015 (May 2015: +2.8% MoM). The uptick came from both the retail and corporate segments. For the corporate segments, there were significant jumps in the construction and working capital segments. As for the retail segments, residential mortgages and non-residential mortgages posted increases in impaired loans for two consecutive months. Gross impaired loans ratio remained unchanged at 1.6% in June 2015, compared to 1.6% in May 2015, mainly due to the higher loan base effect. Loan loss cover fell below the 100% level, to 97.5% in June 2015, from 100.6% in May 2015. This indicates that not all newly impaired loans are fully provided for, in our view.

- Maintain NEUTRAL. Leading loan indicators are healthier in June 2015, led mainly by the corporate segment. However, industry LDR continued to creep up, while impaired loans had registered two consecutive months of upticks. We maintain our sector rating at NEUTRAL.

Source: AmeSecurities Research - 3 Aug 2015