Latest Trends

• Nov loan growth moderated to +3.9% YoY (+4.6% YoY in Oct- 17) derailed by a dip in business loan growth (caused by repayments and shift of funding), whilst HH loan remained steady.

• Loan applications soared by +15.8% YoY vs. +12.8% YoY in Oct-17, driven by both HH and business loans.

• Loan approvals surged by +22.3%YoY vs. -2.1%YoY in Oct- 17, fuelled by storng business and HH loan approvals.

• System deposit growth is on the mend, rising steadily by +5.0% YoY, chiefly from higher growth in CASA and NIDs.

• Average lending rate (ALR) eased by 3bps to 4.61% while interest spread (ALR minus 3-month interbank rate) softened to 1.26% due to higher in 3-month interbank.

• Absolute NPL declined by -2.1% MoM, contributed by both business and HH loans by -3.0% MoM and -0.2% MoM respectively.

Our Take

• We expect banks to post earnings recovery into 2018, 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 further stability in banks asset quality in 2018, however we view that certain segments may pose a risk to the potential stablility of asset quality.

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

• Liquidity is in the mend since BNM implemented forex measures that cap further liquidity outflow.

Risks

• The downside risks to our call are (1) significant deterioration in asset quality, and (2) further weakening of loan growth 3) severe NIM compression.

Rating

NEUTRAL ( ↔ )

• Despite bank stats in Nov-17 being unexciting, it was due to 2 main reasons, namely caused by repayments and shift of funding. Nonetheless, we believe banks should earn another look due to positive leading incators sustained. Seasonally, CY4Q is stronger quarter for banks and we are positive banks should end FY17 in better performance.

Top Picks

• Maybank (BUY, TP: RM10.70) and RHB (BUY; TP: RM5.60).

Source: Hong Leong Investment Bank Research - 2 Jan 2018