Latest  Trends

• Loans growth accelerated to 9.2% yoy vs. 8.8% on pick up in both business and household segments as disbursement jumped (overall as well as both the segments).

• Applications and approvals (Leading Indicators – LI) jumped mom with applications at lower yoy contraction while approvals reversed to yoy growth. Similar t rends in business and household. Numbers could have been skewed by pentup demand after the holiday shortened Feb month as well as ahead of GST implementation. Approvals rate decreased but stayed above the 50% mark for four consecutive months.

• Deposits yoy growth accelerated and sustained above 7% for four months and highest since May 13. LD ratio lower with excess liquidity increased to RM322bn.

• Average lending rate (ALR) and spread higher.

• Asset quality improved and still near strongest level. Capital ratios declined slightly (could be dividend payment) but remained robust.

Our Take

• Although YTD loans growth ahead of our projection, we are keeping our 2015 estimate at 8%. We still expect higher business loans growth to offset slowdown in household. Business loans growth has shown signs of acceleration again.

• Although 1Q ALR was slightly higher qoq, average spread was lower. Coupled with intensified competition for funding, banks’ 1Q NIM expected to be lower. New lending framework may see more pricing discipline while relaxation on LCR could east deposits competition.

• Strong asset quality and robust capital ratios intact and wil l 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

• 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, GST impact on consumer sentiment, tougher business envi ronment increase the possibility of rise in delinquencies and portfolio losses from foreign outflow.

Top Picks

• Maybank, RHB Cap and AFG.

Source: Hong Leong Investment Bank Research - 5 May 2015