- Leading indicators rebound but largely due to a low baseeffect. Loans applications growth rebounded by a seemingly strong 47.3% inFebruary 2012, compared with the first decline in five months in January 2012of -2.7%. Loans approved growth recovered as well to 17.7%, from -2.9% inJanuary 2012. This was due mainly to a low base effect from February 2011, asthe Chinese New Year was on 15 February 2011 and on 23 January 2012. Overall,February 2012's recovery is reasonable, considering February 2012 also hadadditional holidays for a generally much shorter working month.

- Household loans applied had generally recovered but notthe household loans approved.  In thehousehold segment, loans applied has generally normalised to the average of2011, but this was not the case for loans approved. Absolute loans approvedappears to be lower than the average achieved on a MoM basis in 2011,indicating that  borrowers were likely tohave continued to make multiple applications, but loans approved could havebeen delayed partly by the increased documentation process required under thenew Responsible Lending Guideline. 

- Likely due to continuing impact from Responsible lendingGuideline. From this, we believe that there is continuing impact from the newResponsible Lending Guideline. Nevertheless, we are already projecting arelatively low loans growth of 6.4% for 2012F for the sector, which issignificantly lower than the 13.6% achieved in 2011. Thus, we are unlikely to changeour forecasts based on February 2012's statistics. 

- Gross impaired loans improved in February 2012 followingan uptick in January 2012.  Moreimportantly, overall gross impaired loans improved with a 0.5% MoM drop inFebruary 2012. Gross impaired loans ratio remained unchanged for the fourthconsecutive month at 2.7% in February 2012, while loan loss cover rose to 97.5%in February 2012, from 96.6% in January 2012. There were improvements in two ofthe three major corporate segments, i.e. construction and working capitalloans, while the other purposes segment continued to record a marginalincrease. 

- Some consumer-related impaired loans was also better inFebruary 2012. As for the consumer-related segment, there was now animprovement in the residential mortgage and consumer durables segments. Thisindicates that the January 2012 uptick was likely caused by historically slowerrepayments during the school holiday and festive season spending.

- Maintain overweight. February's banking statisticsindicate continuing  impact from the newResponsible Lending Guideline in terms of top line growth, but we are likely tomaintain our overall loans growth, given that our projection is already quitelow. More importantly, gross impaired loans have improved ' affirming ourbelief there should be room to lower our loan loss provisions ahead. Maintainoverweight on the sector.

Source: AmeSecurities