Banking system’s July loan growth dipped slightly to 3.9% yoy (June: 4.2% yoy), while month-on-month (mom) growth was flat, largely due to higher repayments. Despite that, the RM102.4bn worth of loan disbursement in July 2019 was above RM93bn, i.e. the average size of monthly disbursements from 2014-18. As at July 2019, economic sectors which continue to see positive loan growth yoy are manufacturing, retail/wholesale, construction and households. In terms of asset quality, there was another uptick of 0.03ppts mom to 1.6% in July 2019 while on a year-to-date basis, impaired loans were up 9.3%. Given the weak year-to-date loan growth of 1.4%, this translates into an annualized loan growth of 2.3%. Maintain NEUTRAL sector stance, with RHB Bank (RHBBANK MK, RM5.67, BUY) and Aeon Credit (ACSM MK, RM14.96, BUY) as our top picks.

July 2019 Loan Growth Slipped to 3.9% Yoy (from 4.2% Yoy in June)

The banking system saw loan growth of 3.9% yoy in July 2019 (June: 4.2% yoy) while mom growth was flat against June. Despite a backdrop of weak business sentiment, the loan disbursement of RM102.4bn in July 2019 remained 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 cushioned by the broad-based economy while over the longer term, we expect consumer sentiment to gradually improve and drive consumption spending. Details of the July loan-growth trends are as follows:

i) Business loans grew at a more subdued pace of 2.5% yoy in July (from 3.4% yoy in June 2019), 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 32.4% of system loans) driving loans on a yoy basis. According to MIER, the business conditions index remained in a 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 4.7% yoy in June (June: 4.9% yoy) driven by residential mortgages and personal financing. New loan applications, approvals and disbursements remained healthy on a mom basis, in particular for mortgages, autos and personal-financing.

Source: Affin Hwang Research - 3 Sept 2019