Banking system loans kicked off the year in 2019 with a 5.5% yoy growth, while expanding by 0.3% mom (Dec18: +0.6% mom). The yoy growth was underpinned by sectors like manufacturing, retail, business services, construction and households (residential properties, personal use, credit cards). We saw a mom pullback in both approvals and disbursements in Jan19 while new loan applications edged up mom in Jan19. We expect loan growth to be slow in the first quarter of 2019, in tandem with slower business activities due to the seasonal effect of the Chinese New Year. We maintain our NEUTRAL sector stance, with Maybank (MAY MK, BUY, RM9.53) and Aeon Credit (ACSM MK, BUY, RM16.54) as our top picks.

Jan19 Loans Grew at 5.5% Yoy; Expect Business Activities to be Slow

The banking system saw loan growth sustaining at 5.5% yoy in Jan19 (Dec18: 5.6% yoy), while growing at a monthly growth rate of 0.3% mom. For 2019E, we keep our loan growth target of 5% unchanged, noting that loan disbursements may gradually taper down due to a more cautious business and consumer outlook in 2019, largely dampened by external factors. The downside risks are largely supported by our strong economic fundamentals – resilient consumer spending, business growth and low unemployment rate, of which are holding up. Longer term, with new government policies after the Budget 2019 announcement, we expect consumer sentiment to gradually improve and drive consumption spending. Details of the Jan19 loan growth trends are as follows:

i) Business loan growth fell to 4.8% yoy in Jan19 (from 5.6% yoy in Dec18), as business activity moderates in tandem with the seasonally slower period of first quarter. Real-estate, construction, wholesale/retail, business services and manufacturing were the key business sectors (accounting for 33% of system loans) and key drivers on a yoy basis. According to MIER, business expectation is also turning more pessimistic based on a second consecutive quarter of reduction in the indices for capital investment (-12.9ppts qoq) and capacity utilization (-3.6ppts qoq) in 4Q18.

ii) Household loan growth was up 5.5% yoy in Jan19 driven by residential mortgages and personal financing. We saw a stronger mom trend in new loan applications, approvals and disbursements, of which have stayed optimistic in sectors such as residential property, auto and purchase of securities.

Source: Affin Hwang Research - 1 Mar 2019