Banking system’s June loan growth remained subdued at 4.2% yoy, though on a mom basis, it was up by 0.4%. Despite that, the monthly aggregate loan disbursements as at June 2019 were ahead of the average size in monthly disbursements 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 saw an uptick of 0.04ppts mom to 1.57% in June 2019 while edging up further from December 2018’s level of 1.48%. Given the weak year-to-date loan growth of 1.3%, we currently review our 2019E loan growth target of 5.0% yoy. Maintain NEUTRAL sector stance, with Alliance Bank (ABMB MK, RM3.68, BUY) and Aeon Credit (ACSM MK, RM16.54, BUY) as our top picks.

June 2019 Loans Grew 4.2% Yoy; Disbursements Continue to Hold Up

The banking system saw loan growth of 4.2% yoy in June 2019 (May: 4.5% yoy) while mom growth was slightly better at 0.4% against +0.3% mom in May. Despite a backdrop of weak business sentiment, the aggregate monthly loan disbursement in June 2019 remains higher than the average monthly disbursement from 2014-18 of RM93bn. We are currently reviewing our 2019 loan growth target of 5%, amidst cautious business and consumer 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 June loan-growth trends are as follows:

i) Business-loan growth grew by 3.4% yoy in June (from 3.6% yoy in May 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, the business conditions index remained in contractionary mode in 2Q19, sliding to 94.2 points (from 95.3 pts in 4Q18; 94.2pts 1Q19) while production is expected to decline with unexciting external orders and marginal increase for local orders.

ii) Household loan growth was up 4.9% yoy in June (May: 5.3% yoy) driven by residential mortgages and personal financing. New loan applications and approvals both contracted on a mom basis, in particular for residential mortgages, autos and personal-financing

Source: Affin Hwang Research - 1 Aug 2019