KUALA LUMPUR: HLG Research is maintaining its Overweight on banks and the top picks are AMMB, Maybank, RHB Cap, AFG and Affin.

It said on Friday, Oct 1 the August banking statistics showed loan growth in August decelerated slightly to 11.8% (11.9% in July), due to business segment but household segment continued to accelerate.

The statistics released by Bank Negara on Thursday showed the leading indicators had accelerated, driven by the business segment while the household segment maintaining momentum.

Leading indicators (application and approval) accelerated, driven by the business segment while the household segment maintaining it momentum.

HLG Research said the loan-deposit ratio improved due to faster mom deposit growth (1%) versus on-month loan growth (0.8%), ample liquidity to support continued loan growth.

The lending rate improved, providing cushion for competitive pressure on margin. Asset quality also improved with absolute NPL/IL declining for the first time in eight months.

Capital ratios remained robust and with the watered down Basel III, M&A and capital management themes intact.

HLG Research said it was maintaining its 2010 loan growth projection of 10% given economic slowdown in 2H10 and potential selective cap on mortgages.

"Overall trends are positive and supportive of continued loan growth with stable margin (thanks to OPR hikes). Meanwhile, asset quality is expected to remain benign and should also support earnings growth from lower provisions," it said.

Deterioration in asset quality and temporary pause in noninterest income growth.

Positives - Best proxy to commencement of new economic cycle, potential M&A excitements and capital management (especially post the watered down Basel III) as well as interesting / compelling individual stories.

Negatives - Intensifying competitive pressure on margin as well as slowdown in loan growth in tandem with the expected slower economic expansion in 2H10 and potential selective cap on mortgages.