- From our recent company visit, we believe loanapplications for RHB Capital have remained stable in recent months. However, weunderstand loans approvals to have declined substantially. 

- We understand the main reason for this is due to increaseddocumentation required to support proof of income under the new lendingguidelines which came into effect from 1 January 2012.  This is likely to have affected residentialmortgage and auto loans, which make up a large portion (21% and 12%,respectively) of its loan book. 

- We do not expect financing for Amanah Saham Bumi (ASB)unit trust to be affected, as these loans are considered as secured. Personalloans, on the other hand, are likely to have stiffer documentationrequirements. Total assets financed through EASY stand at 3.4% of total loans,or at about RM3.3bil as at 4QFY11. Of this, 75% is related to ASB financing,while 25% is related to personal financing.  

- Despite likely softer consumer loans, we expect RHB Cap tomaintain its loans growth target at 12% for FY12F, as the group is likely tobenefit from the government's Economic Transformation Programme (ETP). We arenot changing our forecasts, given that our loans growth projection at 9.5% isalready lower than RHB Cap's target. For the SME segment (12% of total loan),RHB Cap maintained its shift in focus on asset-based (eg shop-house) financingrather than the working capital segment.

- RHB Cap is likely to be implementing full FRS139 as well.This is likely to lead to a small write-back from its collective assessmentbalance, and decline in loan loss cover. More importantly, the loan lossprovisioning for smaller non-performing loans (NPL) will now likely beestimated using the actual probability of default (PD) and loss given default(LGD) experience on historical five-year data, rather than on the previoustime-based provisioning basis under the old GP3 accounting basis. 

- Further, we understand that there has been no significantnew SME impaired loans in recent months, while the earlier selected SME in themanufacturing and exports segment which had turned into impaired loan status inthe beginning of the year has stabilised. This is positive for loan lossprovisioning. The company alluded credit costs will likely be lower thanearlier targeted of 30bps to 50bps FY12F (our forecast: 64bps). We aremaintaining our HOLD on RHB Cap, with fair value of RM8.20/share. We believethere is limited downside given RHB Cap's cheap P/BV valuation of 1.4x.