Latest Trends

• Loan growth inched higher to +6.1% YoY. Higher loan growth was supported by growth in the business segment, whilst HH loan decelerated slightly after an improvement in Mar.

• Loan aplications decelerated to +0.6% YoY compared to +6.3% YoY recorded in Mar caused by weakness in business loan (-3.8% YoY).

• Loan approvals also retreated significantly to only +0.3% YoY, with drag coming from business loan (-12% YoY).

• Deposit growth picked up to +3.5% YoY chiefly due to the rise in the demand deposit by +11% YoY

• Average lending rate (ALR) moderated by 10bps to 4.60%.

• Gross impaired ratio grew to 1.66% due to the rise in absolute NPL.

Our Take

• We maintain our 2017 loan growth forecast at 6.0% YoY, supported mainly by business segment that will capitalize on the development spending as well as recovery in the SME segment.

• We expect banks to post earnings recovery in 2017, on the back of 1) higher loan growth expectations 2) stable contribution from NOII 3) continued discipline on expenses, and 4) ending of impairment programme.

• We expect banks’ loan loss coverage (LLC) to improve in CY2017 given the slower trend of large provision.

• BNM measures to mandate conversion of export proceeds may eventually help to increase system liquidity.

Risks

• Deteriorating asset quality that will impact banks provisioning level and high household debt that will push consumer sentiments lower.

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: RM9.90), and BIMB (BUY; TP: RM4.86).

Source: Hong Leong Investment Bank Research - 1 Jun 2017