News

• BNM releases NSFR exposure draft… BNM released an exposure draft on Net Stable Funding Ratio (NSFR) to obtain feedback on the proposed regulatory requirements. NSFR is a minimum standard that requires bank to maintain a stable funding profile. Responses from industry players are due by end Nov-17, and NSFR regulatory requirement is expected to be finalized before end-2017.

• Implementation delayed to 2019… NSFR framework in Malaysia adopts the concept paper issued by Basel Committee Banking Supervision (BCBS). The original implementation deadline of Jan-18 is now delayed into Jan- 19, as there is considerable uncertainty on the international front in terms of meeting the agreed timeline. BNM said that Malaysia is not alone in deferring the implementation date (among others Canada and US).

Comment

• Banks met the benchmark… Pursuant to BNM requirements, banks are required to maintain at all time both the NSFR and LCR above 100%. As at CY2Q17, all banks have already met the LCR requirements (industry average at 141%). However, BNM said that only 3/4 of banks have already met the NSFR requirement of minimum 100%.

• Immaterial impact to banks… As banks have already taken measures to meet the requirements (NSFR and LCR), we foresee no material impact to banks’ balance sheet structure and near-term profitability. Most banks have started the exercise to rebalance their deposit structure since [late 2015]. The most common strategy is to compete for more sticky individual deposits in meeting the NSFR regulations (sticky deposits represent high bearing in Available Stable Funding).

• New way to gauge liquidity… BNM said loan to deposit ratio (LDR) is no longer a reliable gauge of liquidity due to absence of funding profile. Whilst most banks have yet to disclose the LCR ratio, the closest way to measure liquidity is by looking at loan-to-fund (LTF) and Loan-to-fund-and-equity (LTFE), as both are considering material changes in banks funding structure over time.

Risks

• Deteriorating asset quality that will impact banks provisioning level and high household debt that will limit consumers’ ability to further gear up.

Rating

NEUTRAL ( ↔ )

• We keep our NEUTRAL stance on Banking sector due to modest growth outlook for earnings, loan and deposit growth in the environment of stable GDP expansion. We expect share price movements of banking stocks to be more muted into the remainder of the year as we see limited re-rating catalyst for the banking sector.

Top Picks

• Maybank (BUY, TP: RM10.70) and BIMB (BUY; TP: RM5.00).

Source: Hong Leong Investment Bank Research - 29 Sep 2017