Latest Trends 

Loans growth accelerated slightly to 9.3% yoy vs. 9.2% despite slightly slowdown in both household and business.  Applications and approvals declined due to household but partly offset by business. However, approval rate continued to improve and inched closer to the 50% mark or at 49.6%.  Deposits growth sustained at 8%, LD ratio slightly higher. However, excess liquidity still ample at RM304bn.  Average lending rate (ALR) recovered after three consecutive months of record lows.  Asset quality stable while capital ratios declined but remained robust.

Our Take

Leading indicators still supportive of loans growth. Potential rescheduling of construction projects would slow but not impede growth.  Remained vigilant and maintained 2013 loans growth projection at 9% or 2x HLIB’s GDP projection of 4.5%.  Recovery of ALR if sustain provide respite in future but twomonth average in 3Q13 still lower than 2Q13 average. NIM in 2Q continued to be under pressure but expect continued loans growth to help mitigate.  Asset quality fluctuation over last eight months suggests improvement may be at slower rate. Improvement in working capital purpose (circa 23% of total industry outstanding loans) after six consecutive months of decline a relief.  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 - 1 Oct 2013