Latest Trends

Loans growth accelerated slightly to 9.2% yoy vs. 9.1% on improvement in household while business was sustained (albeit at slightly slower rate).

Applications jumped on the back of household and complemented by business while approvals also improved (albeit at lower magnitude). Thus, approval rate declined to a tad below 50% or at 49.9%.

Deposits growth sustained at 8.1%, LD ratio slightly higher. However, excess liquidity improved to RM306bn, still ample.

Average lending rate (ALR) declined for three consecutive months to yet another record low.

Asset quality deteriorated slightly. Generally, household improved but business deteriorated.

Capital ratios improved and remained robust.

Our Take

Leading indicators supportive of loans growth. Potential delay in construction projects would slow economic and consumption growth. However, only a dampener and not and impediment.

Remained vigilant and maintained 2013 loans growth projection at 9% or 2x HLIB’s GDP projection of 4.5%.

Record low ALR will pressure 3Q13 NIM but expect continued loans growth to help mitigate.

Asset quality fluctuation over last seven months suggests improvement may be at slower rate.

Robust capital ratios to support active capital management, especially with several banks adopting DRP.

Risks

Risk of recession and its impact on asset quality, portfolio losses (MTM and realized), non-interest income growth as well as more macro prudential measures.

Rating

OVERWEIGHT

Positives – Best proxy to the impact of ETP (sector with third highest multiplier effect), domestic consumerism and economy, strong asset quality, robust capital ratios, capital management and M&As.

Negatives – Competitive pressure on margin, potential of recession which would increase the possibility of rise in delinquencies, portfolio losses from foreign outflow.

Top Picks

Maybank and RHB Cap.

Source: Hong Leong Investment Bank Research- 2 Sep 2013