Highlights

• 4 of the 7 banking stocks that are under our coverage met our forecast during the recent reporting season.

• Loan & deposit growth. Qoq, Affin, HL Bank and Public Bank registered loan growth of 0.8%, 0.7% and 1.4% respectively, higher than system loan growth of 0.3%. We note that 3 banks registered a decline in loans during 1Q16, namely CIMB (-2.8%), Maybank (-3.9%), and RHB Cap (-1.1%). While deposit growth of most banks was tracking system deposit growth trend ( -0.1%), that of AFG, HL Bank and Public Bank outpaced thei r respective loan growth, resulting in lower LDR.

• NIM trend. On qoq basis, NIM remained on a downt rend for most banks. Public Bank and RHB Cap, on the other hand, reported NIM expansion for the 3rd consecutive quarter. We believe the erosion in NIM may be easing soon. Higher lending rates, coupled with more disciplined deposit competition will result in stabilization in NIM compression.

• NOII trend. On qoq basis, NOII remained subdued, with banks registering either flattish or lower NOII. The subdued NOII trend was due largely to lower fee income, investment and MTM gains (but partly offset by higher forex gains).

• Overall asset quality intact. With the exception of Maybank, overall GIL ratio remained largely stable, which in turn indicates that overall asset quality in Malaysia remains intact.

Risks

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

Rating

NEUTRAL

• Positives – 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. While we like RHB Cap, we note that RHB Cap shares have already been suspended to facilitate the distribution and capital repayment.

Source: Hong Leong Investment Bank Research - 7 Jun 2016