Highlights

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

• Loan growth. Accelerated to 2.5% YoY in September (industry: +4.2% YoY). The weak performance was expected in the absence of demand catalyst for HH loans while business loans remained stable.

• Deposit growth. Jumped to 4.3% YoY in September (Industry: +0.8% YoY) led by Public Bank whilst Maybank disappointed with slower growth of 6%. We deem banking system liquidity positionto have improved from testy period in 1H16. On YoY.

• NIM. NIM has been relatively stable in this quarter in the absence of deposit competitions. Banks had ended their deposit campaign that was the chief reason of stable NIM.

• NOII trend. NOII surged strongly by 15% driven by strong growth in AMMB, CIMB, Maybank and RHB.

• GIL. Overall, banks continued their efforts to tighten GIL. GIL for the quarter recorded an improvement of 4bps to 1.71%. Maybank reported remarkable GIL comeback for the first time after four quarters due to improvement in Singapore GIL.

Risks

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

Rating

NEUTRAL ( ↔ )

• We keep our NEUTRAL stance on Banking sector due to modest growth outlook for earnings, loan and deposit growth. The modest earnings growth will result in lower ROE and lower the expected return.

Top Picks

• Maybank (BUY: TP: RM8.51) and RHB Bank (BUY; TP: RM5.29).

Source: Hong Leong Investment Bank Research - 7 Dec 2016