Latest Trends

Loans growth accelerated to 9.5% yoy vs. 9.3% despite slight slowdown in business while household loans growth was sustained.

Applications and approvals increased as both recorded double-digit yoy growth. However, approval rate lower mom and remained below the 50% mark.

Deposits growth slowed while LD ratio higher. Thus, excess liquidity decline mom but still ample at RM303bn.

Average lending rate (ALR) recovered for the second consecutive month, after three consecutive months of record lows.

Asset quality slight improvement while capital ratios also increased and remained robust.

Our Take

Leading indicators still supportive of loans growth.

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 average in 3QCY13 still lower qoq and yoy. Expect reporting season to see continue downtrend in NIM. However, still expect continued loans growth to mitigate the margin erosion.

Asset quality of working capital deteriorated but transport and residential property improved, contrary to Public Bank’s 3QCY13 results announcement whereby the latter two deterioration although residential property was due to more stringent classification. Mixed signals warrant monitoring.

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 Nov 2013