Latest Trends

Loans  growth  slowed  by  2bps  8.61%  yoy  on  marginal slowdown  in both  business and  household  segments.

Applications  and  approvals  increased  mom  with  yoy comparis on  reversed to  growth.  Business applications  higher mom  (4  c onsecutive months)  and  double -digit yoy growth  ( 3 consecutive  months ).    Business approvals  also higher  mom.

Approval  rate  declined  slightly  and  remain  below  50%  mark for  seven  consecutive  months.          

Deposits  yoy  growth  decelerated  as  it  contracted  mom, resulting  in  higher  LD  r atio  and  lower  excess  liquidity  of RM284bn  (but still ample).

A verage  lending  rate  (ALR)  higher  3 rd consecutive  month thanks to the OPR hike in Jul 14.

Asset quality and  capital ratios improved.    

Our Take 

Strong  business  leading  indicators  reaffirm  our  view  that ongoing  ETP  and  commencement  of  RAPID  projects  will revive  business  loans  growth.   This  will  help  to  mitigate  the expected  slowdown  in  household  growth.   Thus,  we  are keeping our 2014  loans growth  projection  at 9%.

Higher  ALR  is positive but 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.   Moreover,  contraction  in deposits will intensify competition, putting pressure on 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 inc reas e the  possibility of rise in  delinquencies,  portfolio  losses  from  foreign  outflow  and rising burden  of low income group.

Source: Hong Leong Investment Bank Research - 1 Oct 2014