Banking system loan growth remains sluggish, though on a mom basis, was up +0.3% while yoy, rose 4.6% as at May 2019. That said, the loan disbursement of RM101.5bn in May 2019 is ahead of the average size of monthly disbursement of RM93bn (from 2014-18)/ Economic sectors which continue to see positive loan growth yoy are manufacturing, retail/wholesale, construction and households. In terms of asset quality, the GIL ratio remained steady at 1.52% in May 2019 (+0.01ppts mom) though has edged up from Dec 2018’s level of 1.45%. We maintain our 2019E loan growth of 5.0% and NEUTRAL sector stance, with Alliance Bank (ABMB MK, RM3.76, BUY) and Aeon Credit (ACSM MK, RM16.80, BUY) as our top picks.

May 2019 Loans Grew by 4.6% Yoy; Disbursements Continue to Hold Up

The banking system saw loan growth of 4.6% yoy in May 2019 (April: 4.5% yoy) while mom growth was slightly better at 0.3% against a flat month in April 2019. Against the backdrop of weak business sentiment, the monthly loan disbursement in May 2019 of RM101.5bn is still higher than the average monthly disbursement from 2014-18 of RM93bn. For 2019E, we maintain our loan growth target of 5%, underpinned by resilient private consumption and investment spending, amidst a cautious outlook in 2019. On the other hand, downside risks are largely supported by the broad-based economy while over the longer term, we expect consumer sentiment to gradually improve and drive consumption spending. Details of the April loangrowth trends are as follows:

i) Business-loan growth grew by 3.4% yoy in May (from 3.2% yoy in April 2019), also partially affected by loan repayment activity in the finance/insurance sector, wholesale/retail trade and manufacturing sectors. Real-estate, construction, wholesale/retail, business services and manufacturing were the key business sectors (accounting for 32.7% of system loans) which are drivers on a yoy basis. According to MIER, business expectations are also turning more pessimistic based on a second consecutive quarter of reduction in the indices for capital investment (-12.9ppts qoq) while capacity utilization fell to 79.2% (- 3.6ppts qoq) in 4Q18.

ii) Household loan growth was up 5.3% yoy in May (April: 5.2% yoy) driven by residential mortgages and personal financing. New loan applications and approvals continued to grow on a mom basis, in particular for residential mortgages, autos and personal-financing.

Source: Affin Hwang Research - 1 Jul 2019