Latest Trends

Loans growth quicken and end 2013 at 10.6% (vs. HLIB’s 9% projection) as business accelerated while household flattish.

Applications fell (still six consecutive months of double-digit yoy growth) but approvals increased. Approval rate jumped back above 50% mark to 55.5% (highest since Nov 12).

LD ratio lower as deposits mom growth was faster. Excess liquidity decline still ample at RM302bn.

Average lending rate (ALR) stabilized over last five months.

Asset quality improved while capital ratios stable and remained robust.

Our Take

Maintain loans growth projection of 10% for 2014 (2x HLIB’s GDP growth forecast of 5%) on faster business growth which will mitigate expected slowdown in household. 

Although application declined, approvals increased and remained high. Loans growth sustainable on jump in approval rate, yoy double-digit growth of both leading indicators and ample liquidity.

With stable ALR, loans growth, asset quality improvement and better capital markets (non-interest income), banks’ CY4Q13 earnings should show improvement.

Expect asset quality to continue hold up well. Our sensitivity study (see report dated 2 Jan 14) shows that, in worst case scenario, rise in delinquencies will only slow but not derail sector’s earnings growth.

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

NEUTRAL

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 - 4 Feb 2014