Latest Trends

• Loans growth decelerated and ended 2014 at 8.7% yoy (largely in line with our 9% projection) vs. 9.3% as both household and business slowed.

• Applications and approvals declined mom but applications yoy growth accelerated to double-digit. Albeit lower mom, applications and approvals of business segment grew double-digit. Approvals rate improved (mainly business segment) but still below 50%.

• Deposits yoy growth slower but sustained above 7% for two months, first since Jan 14. LD ratio lower with excess liquidity increased to RM308.8bn.

• Average lending rate (ALR) slightly higher but spread lower.

• Asset quality improved to strongest level. Capital ratios declined but remained robust.

Our Take

• Continued positive yoy growth in business leading indicators reaffirmed our view that business loans growth will help to mitigate the expected slowdown in household loans growth. Thus, keeping our 2015 loans growth projection at 8%.

• Although average 4Q14 ALR was flattish vs. 3Q14, average spread fell. Thus, banks likely to report lower sequential NIM in the upcoming reporting season. New lending framework should have limited impact with some upside bias as banks may use this opportunity to exercise more discipline in adhering to risk-based pricing.

• Asset quality for construction purpose started to improve after sharp plunge in S ep 14, reaffirming Maybank’s vi ew that the lumpy default is isolated or case specific and not systemic.

• 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

• Posi tives – Best proxy to the impact of ETP and RAPID (sector with thi rd 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, higher livingcosts and tougher business environment increase the possibility of rise in delinquencies, port folio 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 - 4 Feb 2015