Banking - July loans grew 13.0% led by businesses

kiasutrader

Publish date: Mon, 03 Sep 2012, 11:10 AM

BNM's end-July12 statistics indicate that the banking industry continues to perform strongly despite the underlying global uncertainties. Loan growth rose 12.97% YoY, an increase of 35bps from June 2012. The banking system remains flushed with liquidity given the loan-to-deposit ratio of 78.5% as at July12. With an unutilised deposit amount of RM294.5b, the system will be able to support ETP-related infrastructure projects and capital market activities such as mega IPOs and more aggressive M&As as well as potentially higher trading volume and value in equity market. Despite the lending indicators showing a mixed signal as compared to last month, we still believe that loan growth will be able to outperform our industry loan growth forecast of 12%, on average, for 2012E.

From strength to strength. The growth of 14.4% in business loans were the strongest contributor to the overall growth. Total loans expanded approximately 13.0% YoY to RM1,073b and 4.1% QoQ in July 2012. On an annualised basis, the total loans grew 11.9%, which is in line with our 11.0%-13.0% growth forecast for 2012E.

Loans to households grew at a steady rate of 11.8% YoY, parallel to the stabilising mortgage loans growth at +18.0% YoY (May 2012: +18.1% YoY) and the improving hire purchase loans growth of +7.3% YoY (June 2012: +6.9% YoY). Business loans growth continued its momentum by achieving an increase of 14.4% YoY from +13.6% YoY in June. This was driven by the recent increase in the awards of ETP project deals. On the other hand, the credit card loan growth continues to decline to 3.1% YoY from 4.6% in June12.

Lending indicators mixed in July12 nonetheless. July12 loan applications softened to -4.9% from June's +10.5%. The fall in loan applications was due to the decrease in loan demand from the household sector and financial intermediation, partially due to the effect from the introduction of the responsible lending guidelines by BNM earlier. With most banks already configuring themselves to comply with the rules, we expect the growth in household loans to continue to normalise in the near future.

Deposits growth looking good at 13.5%. The 13.5% YoY growth in the total deposit was due to the 9.1% increase in fixed deposits and 16.0% increase in demand deposits. With the total deposit hovering around the 12%-14% level, the LDR was stable at 78.5%.

Margins squeezed. Interest margins were sharply lower in July. The industry's 3M FD costs held at 2.98%, but the average lending yield declined by 18bps to 4.70%. We expect interest margins will continue to face a modest headwind due to the intensified asset pricing effort by banks to capture market shares.

Gross impaired loans continued to be at their all-time low. The gross impaired loans ratio maintained a low at 2.2% (vs. June12's 2.2%). We see this as a positive trend as it showed that the banking system will be able to finance all the loans and projects in the economy, especially with the current ETP projects rollouts.

Can the industry outperform? All in all, based on BNM's July12 Monthly Statistics Report, there are strong indications that the banking system will be able to support the lending and capital market activities with local funding. The lending capacity has been climbing since November 2011 to 78.5% with the unutilised deposits at RM294.5b. This excess liquidity will be able to support ETP-related infrastructure projects like the MRT project. With the first phase of the MRT project moving into active phase as well as other new ETP deals being awarded (George Ken-Lion Pacific JV's LRT RM960.0m extension, MRCB-Nusa's RM1.0b link, etc.), we are very optimistic that the banking system will be able to fully finance the overall ETP projects without putting any stress on the local banking system liquidity. Having already achieved a 13.0% loan growth this month, we believe that the banking industry will be able to outperform our industry loan growth forecast of 11%-13% despite a slightly weaker set of lending indicators.

We are maintaining our OVERWEIGHT call on the sector. We have OUTPERFORM calls on MAYBANK (TP: RM10.40), PBBANK (TP: RM15.60), RHBCAP (TP: RM9.00), CIMB (TP: RM9.40), AMMB (TP: RM7.40), AFFIN (TP: RM4.30) and BIMB (TP: RM3.60). AFG (TP: RM4.00) and HLBANK (TP: RM13.00) are both rated as MARKET PERFORM.

Source: Kenanga

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