Latest Trends

Loans  growth  accelerated  to  9%  yoy  (vs.  8.6%)  on  faster business but partly offset by slower household.

Applications  and  approvals  increased  mom  with  second consecutive  month  of  yoy  growth.   Business  applications higher  mom  (5  consecutive  months)  and  double -digit  yoy growth  ( 4  consecuti ve  months)  while  approvals  also  higher.   Household  application  higher  but approvals  flat .

Approval  rate  now  at 49.9%, a tad lower than  50% mark.           

Deposits  yoy  growth  also  accelerated, resulting in  higher  LD ratio  and  lower  excess  liquidity  of  RM283bn  (but still ample). Gap with loans growth  narrowing  post OPR hike in Jul 14.

A verage  lending  rate  (ALR)  higher  4 th consecutive  month thanks to the OPR hike in Jul 14.

Asset quality deteriorated slightly but still near strongest level and  capital  ratios  improved  for  second  consecutive  month. Construction  sharp spike in impaired loans, on watch.    

Our Take 

Business  loans  growth  turnaround  and  s trong  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  boost from OPR hik e is  temporary.   However,  do  ex pect  more  stable  NIMs  (with improvement  in some banks) in 3QCY14  reporting  season.     

Asset  quality  intact  with  qoq  improvement,  thus,  unlikely  to significantly impact earnings  in 3QFY14.

Robust capital ratios  to  support  active capital management .   

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.

Top Picks 

• Maybank,  RHB  Cap and AFG  while CIMB is Trading Buy.

Source: Hong Leong Investment Bank Research - 3 Nov 2014