Latest Trends

Loans growth for Feb 14 decelerated to 10.7% vs. 11% in Jan 14 as business growth decelerated while household grew at slightly lower rate.

Applications increased slightly but approvals fell. Levels are still relatively low while approval rate fell below 50% mark.

LD ratio slightly higher as deposits growth continued to lag loans growth. Although excess liquidity decline, it is still ample at RM286.6bn.

Average lending rate (ALR) declined sharply.

Asset quality sustained but mixed in terms of purposes with improvement from business related but deterioration from household related. Transport ratio highest since Feb 10.

Capital ratios higher and remained robust.

Our Take

Maintain loans growth projection of 10% for 2014 (2x HLIB’s GDP growth forecast of 5%), despite 10.7% in Feb 14, on higher base ahead and low levels of leading indicators. This will be partly offset by resumption of pressure on NIM.

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 household related purposes 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 - 1 Apr 2014