Latest Trends

Loans growth accelerated to 9.9% yoy vs. 9.5% due to pick up in business growth while household growth was sustained.

Applications increased (four consecutive months of doubledigit yoy growth) but approvals decreased albeit marginally. Approval rate lower mom and remained below the 50% mark.

LD ratio higher despite acceleration in deposits growth. Excess liquidity decline but still ample at RM300bn.

Average lending rate (ALR) lower, after two consecutive months of improvement.

Asset quality improved while capital ratios slightly lower but remained robust.

Our Take

Leading indicators still supportive of loans growth as demand (applications recorded double-digit yoy growth for four consecutive months) remained strong while approvals were sustained above RM30bn mark for eight consecutive months.

Maintained 2013 loans growth projection at 9% or circa 2x HLIB’s GDP projection of 4.7%. Despite expectations of slower household loans growth, 2014 loans growth should sustain at 9-10% or closely track the 2x GDP rule of thumb as business loans growth should pick up the slack.

ALR lower but marginal, continue to expect loans growth to mitigate margin erosion.

Asset quality improved for three consecutive months, positive signs vis-à-vis the fluctuation from Feb 13 to Jul 13.

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 (albeit slower) 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 and rising burden of low income group.

Top Picks

Maybank and RHB Cap.

Source: Hong Leong Investment Bank Research - 2 Dec 2013