Latest Trends

Loans growth for Apr 14 decelerated to 10% vs. 10.2% in Mar 14 as household moderated while household sustained.

Applications declined (from second highest level) after pent up demand in Mar 14 post festive holidays. Approvals also declined (but lower magnitude). Approval rate improved mom to just a tad below the 50% mark.

Deposits growth accelerated slightly but still lagged way behind loans expansion. LD ratio slightly higher with excess liquidity slightly lower but ample at RM297bn.

Average lending rate (ALR) stable (2bps lower) after recovered from the sharp drop in Feb 14.

Asset quality improved. Transport stable after recovered from the sharp deterioration in Feb 14. Capital ratios also improved and remained robust.

Our Take

Maintain loans growth projection of 10% for 2014 (2x HLIB’s GDP growth forecast of 5%). Demand remained relatively strong with applications above RM60bn for two consecutive months while approval rate was also more stable.

ALR should remained stable if not higher with recent HP rates hike and our expectation of a 25bps OPR hike in Jul which should help ease the pressure on NIM. Nevertheless, the continued slower growth in deposits and heightened competition for deposits will continue to pressure NIM.

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 higher living costs which would increase the possibility of rise in delinquencies, portfolio losses from foreign outflow and rising burden of low income group.

Top Picks

Maybank, RHB Cap and AFG.

Source: Hong Leong Investment Bank Research - 2 Jun 2014