System loan growth was stable at 4.9% YoY (4.8% YoY in Apr-18) as business loan accelerated at faster pace of 4.0% YoY (3.6% YoY in Apr-18) while household loan moderated slightly to 5.6% YoY (5.7% YoY in Apr-18). Both application and approvals were weak. Applications decreased by -9.2% YoY (20.1% YoY in Apr-18) whilst approvals moderated to 0.6% YoY (21.6% YoY in Apr-18). Deposits grew at slower pace of 4.9% YoY (5.6% YoY in Apr-18) to RM1.81trn. Asset quality weakened for the 5th consecutive months at 1.60% due to business loan. Capital remains intact despite moderation in the Tier 1 and core capital. We revised our 2018 loan growth target at 4.5%-5.0%. Maintain NEUTRAL, top picks: Public Bank (TP: RM26.00).

Loan Growth

May-18 system loan growth was stable at 4.9% YoY (4.8% YoY in Apr-18), supported by business loan growth (which growth expanded to 4.0% YoY in May-18 from 3.6% YoY in Apr-18), which compensated a slightly slower growth at the household segment (which growth has eased marginally to 5.6% YoY in May-18 from 5.7% in Apr-18). The increase in business loan was largely driven by real estate increased by 6.1% YoY (vs. 5.3% YoY in Apr-18). For the household segment, the slight moderation was caused by credit card, which declined by -1.8% YoY as compared to a growth of 3.8% YoY in Apr-18.

Loans – Leading Indicators

Overall leading indicators were weak in May-18, both loan application and approvals trending down by 9.2% YoY (vs. +20.1% YoY in Apr-18) and 0.6% YoY (vs. 21.6% YoY in Apr-18) respectively. Loan applications were slower caused by both household (-11.6% YoY vs. 34.7% YoY in Apr-18) and business segment (-5.9% YoY vs. 34.7% YoY in Apr-18). In the business segment, construction nosedived by -49.2% YoY as compared to 0.7% YoY in Apr-18. This is not surprising as the outcome of GE14, resulted in mega projects being the reviewed and/or delayed. Loan approvals moderated to 0.6% YoY as compared to 21.6% YoY in Apr-18, caused by moderation in both household loan and business loan. Household loan declined at faster pace of - 11.3% YoY as compared to 10% YoY in Apr-18, caused by mortgage (-13% YoY vs. 7.1% YoY in Apr-18) and personal use (-5.2% YoY vs 56% YoY in Apr-18). Overall, despite weak approvals, approval rate grew marginally to 45.8% as loan applications fell faster than loan approvals especially in the household loan.

Deposits & LD Ratio

Deposit growth moderated to 4.8% YoY as compared to 5.6% YoY in April-18, caused by weaknesses in fixed deposits and others deposits. CASA was stronger by 5% YoY, likewise, CASA composition was stronger 10bps YoY to 26.8%.

Lending Rate

BLR remained stable at 6.9% while ALR advanced by 7bps MoM to 4.97%. Interest spread widened by 8bps MoM to 1.29% due to higher ALR in May-18. We believe stable CASA growth will provide cushion to the narrowing NIMs that continued to be plague by stiff price-based competition for deposits.

Source: Hong Leong Investment Bank Research - 2 Jul 2018