Latest Trends

• Loan growth in Nov 15 slowed further to 8.4% yoy (vs. 9.1% in Oct 15). Both business and household segments registered slower growth of 8.7% and 7.8% respectively.

• Leading indicators were down on mom basis, with applications declined by 1.4% to RM71.5bn while approvals declined by 11% to RM31.4bn. Approvals rate remained below 50% mark but improved from record low. .

• LDR and net LDR improved to 86% and 84.6% in Nov 15. Excess liquidity expanded to RM233.9bn in Nov 15. While liquidity is still ample to fund domestic economic growth, high LD ratio (despite declining on mom basis) could limit loans growth albeit still supportive of credit expansion.

• Lower average lending rate (ALR) but spread was higher. Asset quality, on the other hand, remains intact.

Our Take

• Keep 2015 loan 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 remain, from both internal and external headwinds as well as weaker leading indicators.

• While liquidity is still ample to support 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 robust capital ratios 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, RHB Cap and CIMB.

Source: Hong Leong Investment Bank Research - 4 Jan 2016