Banking system loans saw a minor recovery of 0.4% mom in Mar19, while the yoy growth held up at 4.9%. In our view, business activities are normalizing after the festive holidays in February based on the level of loan disbursement and approval trends. Sectors which continue to see positive loans growth include manufacturing, retail, business services, construction and households (residential properties, personal use, credit cards). In terms of new loan application, approvals and disbursements, we saw expansion for both the household and businesses from Feb19 to Mar19. Maintain our loan growth target of 5.0% and our NEUTRAL sector stance, with Alliance Bank (ABMB MK, BUY, RM4.06) and Aeon Credit (ACSM MK, BUY, RM16.30) as our top picks.

Mar19 Loans Grew at 4.9% Yoy; Slower Mom Disbursements

The banking system saw a 4.9% yoy loan growth in Mar19 (Feb19: 5.0% yoy; 0.4% mom). Business loans and household loans each grew by 0.3% and 0.4% mom respectively. 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 to drive consumption spending. Details of the Mar19 loan growth trends are as follows:

i) Business loan growth fell to 4.1% yoy in Mar19 (from 4.3% yoy in Feb19), also partially affected by loan repayment activities in the mining/quarrying sector, possibly related to the 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) while capacity utilization dropped to 79.2% (-3.6ppts qoq) in 4Q18.

ii) Household loan growth was up 5.3% yoy in Mar19 (Feb9: 5.0% yoy) driven by residential mortgages and personal financing. New loan applications, approvals and disbursements recovered on a mom basis, in particular for residential mortgages.

Source: Affin Hwang Research - 2 May 2019