Latest Trends

Loans growth decelerated to 9.3% vs. 9.7% in May 14 on lower business while household marginally slower. Acceleration in mom and qoq growth.

Applications and approvals (both business and household) increased. Approval rate also improved but remain below the 50% mark for five consecutive months.

Deposits growth accelerated but still lagged behind loans expansion. LD ratio slightly higher with excess liquidity slightly lower but ample at RM292bn.

Average lending rate (ALR) recovered 11bps from near record low.

Asset quality stable. Transport and construction recovered, the latter’s ratio back to near record low level.

Capital ratios increased due to 1H earnings and remained robust.

Our Take

Maintain loans growth projection of 10% for 2014. Demand remained relatively strong, improvement in approvals, acceleration in mom and qoq loans growth and ETP and O&G projects would revive business loans growth.

ALR should rise on OPR hike but reiterate although rate hike is generally positive to NIM, it is temporary due to liabilities re-pricing catching up and intense competition, especially for deposit in recent months. 2Q higher than 1Q by 2bps, expect more stable NIM in upcoming reporting season.

Asset quality to hold up well. However, rate of improvement to stagnate, eliminating provision as 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 - 1 Aug 2014