Latest Trends

Loans growth sustained at 9.9% as growth of both business and household were flattish.

Applications increased (five consecutive months of doubledigit yoy growth) but approvals decreased albeit marginally. Approval rate fell to lowest and below 50% mark.

LD ratio higher as deposits fell mom. Excess liquidity decline but still ample at RM290bn.  Average lending rate (ALR) higher.

Asset quality deteriorated marginal while capital ratios also lower but remained robust.

Our Take

Leading indicators still supportive of loans growth as demand remained strong while approvals were sustained above RM30bn mark for nine consecutive months (albeit lowest approval rate).

Although YTD loans growth is higher, maintained 2013 loans growth projection at 9% or circa 2x HLIB’s GDP projection of 4.7%.

For 2014, expect slower household loans growth but business loans growth should pick up the slack. Maintain loans growth rule of thumb at 2x GDP which implies a 10% projection based on HLIB’s GDP projection of 5%.

ALR and spread seem to have stabilized, a reprieve to NIM.

Expect asset quality to continue hold up well.

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 Jan 2014