Loan grew 8.5% YTD.On a YTD basis, the total loan amount of RM1,088.6b grew 8.5% or 11.3% on an annualised basis, which is in line with our 11%-13% loan growth forecast for 2012.  With banks having pulled back on consumer lending since 1Q2012, loans to households (which accounted for 54.96% of the total loan) grew at a soft rate in September 12 at +11.9% YoY largely driven by a weakening of the growth momentum in the hirepurchase loan growth of +7.1% YoY (vs. August12: +7.3%), mortgage at +16.6% YoY (vs. August12: +17.5%), despite a slight recovery in credit card loans of +3.1% (vs. August12: +2.4% YoY). Meanwhile, business loans growth rate was also weaker at +12.1% YoY (vs. August12: +13.2%).

Lending indicators mixed in Sep12 nonetheless.  There was a 10.1% YoY recovery in loan applications to RM62.5b in Sep12 vs. August's 8.8% YoY drop. However, loan approvals declined 0.1% YoY.

Deposits rose +11.4% YoY. The YoY growth in the total deposits was due to the +7.5% increased in fixed deposits and +12.9% growth in demand deposits. As the loans growth was parallel with deposit growth, the LDR was stable at 78.5%, with total CASA contributing 24.8% of the total deposits.

ALR up +4bps.  Interest spread improved marginally as the 3M FD costs held steady at 2.98%, but the average lending yield improved by 4bps to 4.76%. However, with the banking system's loan-to-deposit ratio standing at 78.5%, this could put further pressure on banks' interest margin.

Asset quality weakens marginally.  Absolute impaired loans were barely changed at RM24.2b compared with RM23.4b in August 2012. The impaired loan ratio was slightly higher at 1.54% (August 2012: 1.48%) and the loan-loss  coverage was slightly lower at 97% (August 2012: 102%).

No change in our view for now.  We believe that our projected industry loan growth of 11%-13% for 2012E can be achieved as corporate loans are likely to grow in 2H with the start of ETP infrastructure projects with internal funding. In conclusion, we believe that local banking groups will continue to do well in the current conducive banking system. 

Source: Kenanga