• Loans growth slowed further to 9.1% yoy vs. 9.7% in Sep 15, as both household and business segments recorded slower loans growth of 9.8% (vs. 11%) and 8% (vs. 8%).

• Leading indicators showed improvements on mom basis, with loan application and approval increasing by 8% and 10.9% mom, respectively. Approvals rate remained below 50% mark but improved to 44.3% from all-time-low of 41.6%.

• LDR and net LDR increased to 86.3% and 84.9%, excess liquidity narrowed to RM227.3bn in Oct 15. While liquidity still ample to fund domestic economic growth, high LD ratio 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.

• Average lending rate (ALR) resumed on uptrend, increasing by 5.2bps to 4.54% in Oct 15 vs. 4.49% in Sep 15, while spread (vs. 3-month KLIBOR), on the other hand increased by 3.2bps to 0.79% from 0.76% in Sep 15, due to a 2bps increase in 3-month KLIBOR to 3.75%

• 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 - 1 Dec 2015