Latest Trends

Loans growth started 2014 strongly, accelerated to 11% vs.10.6% in Dec 13 as business growth continued to accelerate while household growth was sustained.

Applications and approvals fell (could be due to festive season) to lowest in almost a year but approval rate remained above the 50% mark at 52.4%.

LD ratio higher as deposits contracted mom. Although excess liquidity decline, it is still ample at RM289bn.

Average lending rate (ALR) declined slightly but seems to have stabilized over last eight months.

Asset quality sustained but transport and others continued to deteriorate (albeit slightly).

Capital ratios lower but remained robust.

Our Take

Maintain loans growth projection of 10% for 2014 (2x HLIB’s GDP growth forecast of 5%), despite 11% in Jan 14, on higher base ahead and weak leading indicators. Latest trend suggests our view of stronger business loans growth to mitigate slower consumer loans growth is slowly taking place.

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. On the other hand, continued deterioration in transport and others reaffirm our view that rate of overall asset quality improvement will slow and provision would no longer be the main earnings driver.

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 - 3 Mar 2014