The ytd-Nov17 banking system loan growth remains subdued at 3.0% given a mom growth of a 0.3% (while annualized growth rate of 3.27% is still behind our full year forecast of 5%). On a positive note, sectors such as wholesale/retail trade/services, real-estate, construction and transportation are potentially sectors which could see stronger demand for financing in 2018, though for 2017 system loans was affected by corporate loan repayments. Maintain OVERWEIGHT. Sector top picks: Hong Leong Bank and Maybank.

Banking System Loans Remains at a Sluggish +3.0% Ytd Nov17

The banking system’s loans growth continues to remain on the moderate side, coming in at +3.0% ytd and +3.9% yoy. Key factors to this include: i) Corporate bonds continue to be the preference (24.5% of system financing), which was reflected by a much stronger growth of +13.8% ytd Nov17 vis-à-vis the banking system’s business loan growth of

+1.0% ytd. Amid the recent large scale infrastructure and construction projects as well as the prospects of higher borrowing costs moving forward, it is not a surprise for the shift in funding to the debt market due to the size (larger) and tenure (longer); ii) moderation in the household segment’s loan growth, with a ytd growth of 4.5% (annualized growth at 4.9%) vs. >10% yoy growth prior to Dec14; and iii) loan replenishment continues to remain sluggish. Ytd, loan disbursements (totalling circa RM1bn) are still ahead of loan repayments, albeit marginally. As at Nov17,on a cumulative basis, loan disbursements was up 5.6% yoy while loan repaid had increased by 7.7% yoy. The banking system loans growth continued to hold up at 3.9% yoy in November, with household loans growth at 5.2% and business loans growth at a slower pace of 2.3% yoy. In November, almost all sectors showed slower yoy growths compared to October. Key sectors driving loan growth were households, retail and trade, construction, real-estate and transportation. Holding all else constant, despite the subdued loan growth ytd, banks had continued to see robust expansion in the 9M17 fund-based income (+10.3% yoy) as a result of the lower overall funding cost and repricing of loans. This was also reflected in the 9M17 NIM, which was up +9bps yoy to 2.33%.On a positive note, we do not discount the possibility of stronger loan growth in the months of December, which we had seen in the previous years.

Source: Affin Hwang Research - 2 Jan 2018