Banking system loans saw a minor pullback of 0.2% mom in Feb19, while yoy growth stood at 5.0%, largely due to moderation in business activities – mining/quarrying, real-estate, agriculture sectors in particular. In tandem with a slower period during the Chinese New Year holidays, we also saw declines in new loan application, approvals and disbursements for both the household and businesses from Jan19 to Feb19. The yoy growth was underpinned by sectors like manufacturing, retail, business services, construction and households (residential properties, personal use, credit cards). Maintain our loan growth target of 5.0% and our NEUTRAL sector stance, with Maybank (MAY MK, BUY, RM9.27), Alliance Bank (ABMB MK, BUY, RM4.09) and Aeon Credit (ACSM MK, BUY, RM16.54) as our top picks.

Feb19 Loans Grew at 5.0% Yoy; Slower Mom Disbursements

The banking system saw a 5.0% yoy loan growth in Feb19 (Jan19: 5.5% yoy), while on a monthly basis, down by 0.2% due to a pullback of 0.5% mom in business loans (while households grew by 0.1% mom). For 2019E, we maintain our loan growth target of 5%, underpinned by resilient private consumption and investment spending, amidst a backdrop of a more cautious outlook in 2019. The downside risks are largely supported by our broad-based economy while over the 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 Feb19 loan growth trends are as follows:

i) Business loan growth fell to 4.3% yoy in Feb19 (from 4.8% yoy in Jan19), as business activity moderates. We saw higher loan repayment activities in the mining/quarrying sector, possibly related to restructuring activities of O&G companies. 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 dropped to 79.2% (-3.6ppts qoq) in 4Q18.

ii) Household loan growth was up 5.0% yoy in Feb19 (Jan19: 5.5% yoy) driven by residential mortgages and personal financing. Due to the festive period, we saw a sharper moderation in new loan applications, approvals and disbursements on a mom basis.

Source: Affin Hwang Research - 1 Apr 2019