Latest Trends

Loans growth for Mar 14 decelerated to 10.2% vs. 10.7% in Feb 14 as but business and household decelerated.

Applications jumped (second highest level) while approvals also increase (but lower magnitude). Approval rate remained below 50% mark for second consecutive month.

Deposits growth accelerated, slight improvement in LD ratio. Excess liquidity increased decline to ample RM298bn.

Average lending rate (ALR) recovered from the sharp drop in Feb 14, back to Jan 14 levels.

Asset quality sustained. Transport improved after Feb 14 ratio fell to worst since Feb 10.

Capital ratios slightly lower but remained robust.

Our Take

Maintain loans growth projection of 10% for 2014 (2x HLIB’s GDP growth forecast of 5%). Strong jump in application could be due to pent up demand post festive holidays. Overall, leading indicators suggest that demand remained strong but with tighter approvals (approval rate remained below 50%), loans growth likely to be at more measured pace.

ALR should continue recover with recent HP rates hike, providing some respite from pressure on cost of funds. However, 1QCY14 average ALR still slightly lower, expect to see some NIM compression in upcoming reporting season.

Asset quality to continue hold up well. However, rate of improvement expected to stagnate, reducing potential of provision as a major 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 - 2 May 2014