Latest  Trends

• Loans growth accelerated to 8.9% yoy on faster business which more than offset slower household. Business growth outpaced household for first time since Jan 13.

• Leading Indicators (applications and approvals - LI) fel l slightly mom but contrasting yoy comparison with applications reversed to contraction while approvals the opposite. Business LI higher and sustained yoy growth but household LI lower with continued contraction. Approvals rate lower and below 50% mark (for two consecutive months) mainly on household but partly offset by higher business.

• Deposits contracted marginally mom, culminating in deceleration of yoy growth albeit above 8% for four consecutive months. LD ratio higher with excess liquidity decreased to RM304bn.

• Average lending rate (ALR) lower but spread flat.

• Asset quality deteriorated slightly but not alarming and near strongest level. Capital ratios mixed and remained robust.

Our Take

• Keeping our 2015 loans growth projection at 8% despite stronger YTD growth given uncertainties in 2Q post GST implementation, lower LI and lower approval rate. The contrasting performance of business and household LI is in line with our expectations of stronger business segment mitigating the expected slowdown in household.

• Mom contraction in deposits mainly due non-household while household deposits continue to expand mom albeit slower yoy growth. With liquidity still ample (albeit lower), we are not overly concerned unless the contraction prolongs.

• Decline in ALR coupled with intense deposits competition suggest continue pressure on NIM.

• Solid asset quality and capital ratios intact to support growth.

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 11MP and RAPID, domestic consumption (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 environment increase chances of higher defalts and portfolio losses from foreign outflow.

Source: Hong Leong Investment Bank Research - 1 Jul 2015