Loans grew 0.6% m-o-m or 9.2% y-o-y in Jul-13 (Jun-13: 1.3% m-o-m; 9.1% y-o-y) taking YTD loan growth to 5.8%. Retail loans (11.8% y-o-y) continue to outpace business loans (6.3% y-o-y).

Loan applications and approvals picked up in Jul-13, rising 13% and 6% respectively, and were largely driven by the consumer segments. We maintained our 2013 loan growth estimates at 10%.

Deposit growth was flat in Jul-13 (0.5% m-o-m; 8.0% y-o-y; 5.0% YTD). CASA growth resumed (2.2% mo-m; 11.8% y-o-y; 5.7% YTD), while fixed deposits growth slowed for the second month (flat m-o-m; 13.0% y-o-y; 8.4% YTD).

Average lending yields fell 7bps m-o-m or 25 bps y-o-y (Jun-13: -9bps m-o-m; -35 bps y-o-y) and 3-month fixed deposit rate were unchanged, leading to further narrowing of loan spreads.

Asset quality remains robust with gross NPL ratio at 1.97% (Jun-13: 1.96%). Capital ratios were stable with CET-1, Tier-1 CAR and total CAR at 11.8%, 12.7% and 13.8%, respectively.

Within the sector, we like MAY (BUY; TP RM11.80) for dividend yields and HLB (BUY; TP RM18.00) for balance sheet leverage and improve capital efficiency from possible corporate streamlining exercises. RHBC (BUY; TP RM9.20) remains attractive on valuations with expectations of improving non-interest income post-acquisition of OSK IB.

Source: HwangDBS Research - 2 Sep 2013