Latest Trends

Loans growth decelerated to 8.6% yoy vs. 9.3% in Jun 14 on slowdown in both business and household segments.

Applications and approvals declined mom (albeit slightly) and yoy. Saving grace is business applications higher mom (3 consecutive months) and double-digit yoy growth (2 consecutive months). Approval rate also improved but remain below the 50% mark for six consecutive months.

Deposits yoy growth decelerated marginally. However, mom growth faster than loans, resulting in lower LD ratio and higher excess liquidity of RM299bn.

Average lending rate (ALR) higher 2nd consecutive month.

Asset quality stable while capital ratios increased strongly for the second consecutive months from cash call.

Our Take

Cut loans growth projection to 9% for 2014. Still expecting ongoing ETP and commencement of RAPID projects to revive business loans growth, especially in view of recent increase in applications. However, will be mitigated by continued slowdown in household growth and higher base.

ALR should rise on another OPR hike in Sep 14. Reiterate that 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. Thus, expects OPR hikes to help sustain rather than boost NIM.

Deposits growth to accelerate post Jul OPR hike and another hike expected in Sep, ease competition but drag NIM.

Asset quality intact but rate of improvement to stagnate, eliminating provision as earnings driver. Robust capital ratios to support active capital management, especially with 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 and RAPID (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 Sep 2014