• Loans growth accelerated to 8.8% yoy vs. 8.6% on pick up in business loans growth while household loans growth was sustained.

• Applications and approvals (Leading Indicators – LI) declined mom and recorded sharp yoy contraction. Similar trends in business and household except for business approvals which was higher mom. Numbers could have been skewed by the short Feb month and festive holidays (vs. CNY in Jan 14). However, approvals rate increased and stayed above the 50% mark for third consecutive months.

• Deposits yoy growth accelerated and sustained above 7% for four months, first since Jan 14. LD ratio flat with excess liquidity increased slightly to RM301bn.

• Average lending rate (ALR) and spread higher.

• Asset quality deteriorated slightly but still near strongest level. Capital ratios declined but remained robust.

Our Take

• Despite lower LI, it could have been skewed by timing of festive holidays and short month. Thus, we are keeping our 2015 loans growth projection at 8%. This is premised on higher business loans growth (from ongoing RAPID and ETP projects) to offset the expected slowdown in household loans growth. Moreover, business loans growth has shown signs of acceleration again, after two months of slowdown.

• Higher ALR and spread higher should help to partly offset the impact on NIM from intensified competition for funding. New lending framework may see more pricing discipline as banks adhere more to risk-based pricing.

• Strong asset quality and robust capital ratios intact and will support growth and 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, higher living costs and tougher business environment increase 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 Apr 2015