Latest  Trends

• Loans growth slowed to 9.7% yoy vs. 10.2% in Aug 15 mainly attributed to the household segment whereby growth slowed to 8.1% (from 8.3% in Aug 15) while business was sustained.

• Leading indicators were mixed on mom basis, applications lower but approvals higher. Approvals rate remained below 50% mark but improved to 43.2% from previ ous month’s alltime- low of 41.6%.

• LDR and net LDR improved to 85.4% and 84.1% in Sep 15. Excess liquidity expanded RM242.8bn in Sep 15.While liquidity still ample to fund domestic economic growth, high LD ratio (albeit having declined on mom basis) could limit loans growth albeit still supportive of credit expansion

• Average lending rate (ALR) and spread lower. Asset quality, on the other hand, remains intact.

Our Take

• Keep 2015 loans growth projection at 8% despite stronger YTD growth given higher base, slower applications growth, near record low approval rate and higher LD ratio. Expectations of stronger business segment mitigating household slowdown materialized but challenges from internal and external headwinds as well as weaker leading indicators.

• While liquidity still ample to fund domestic economic growth, higher LD ratio could limit loans growth and pressure margin.

• Decline in ALR to only 5bps above all-time low, intense competition for deposits and higher LD ratio will continue to exert pressure on margin.

• Solid asset quality and capital ratios intact to support growth and capital management, especially with dividend reinvestment plan.

Risks

• Risk of recession and its impact on asset quality, portfolio losses (MTM and realized), as well as non-interest income growth.

Rating

NEUTRAL

• Posi tives – Best proxy to 11MP and RAPID, domestic consumption (albeit slower) and economy; strong asset quality; robust capital ratios; and capital management.

Negatives

• Competitive pressure on margin, GST impact on consumer sentiment, tougher environment increase chances of higher defalts and portfolio losses from foreign outflow.

Top Picks

• Maybank and RHB Cap.

Source: Hong Leong Investment Bank Research - 2 Nov 2015