Banking - Growth momentum slowing down

kiasutrader

Publish date: Mon, 04 Feb 2013, 09:27 AM

The total loan amount of RM1,108.0b for 2012 grew +10.4% on a YoY basis, which came in slightly below our estimate of a 11%-13% growth rate. There was slower growth in business loan, which was mainly due to the weaker growth pace in the construction sector of +10.6% YoY (vs. Nov12: +12.6%) and manufacturing of +3.6% YoY (vs. Nov12: 5.0%). On a YoY basis, there was also a continuous weakening of the growth momentum in household loans as well, due likely to the impact from the Responsible Finance policy. That said, loans to households did grow at a higher rate in December12 at +11.4% YoY (vs. Nov12: +6.6%) largely driven by the hire-purchase loan growth of +7.0% YoY (vs. Nov12: +6.6%), mortgage at +15.8% YoY (vs. Nov12: +16.0%) and credit card at +1.8% YoY (vs. Nov12: +1.2%).

Full year loan growth was marginally below our expectations. The 2012 banking industry loan growth dipped further from 2011, easing by 78bps to 10.4% at RM1,108.0m and came in slightly below our expectations. This was largely due to the weakening growth in both the business and household lending. We expect the growth rate to ease further for 2013.

The full-year slower growth in the household loan of +11.4% (vs. Nov12: +11.6%) was mainly attributable to loan for properties. Mortgage loan growth slowed from 16.0% in the preceding month to 15.8% in Dec12. However, there were minor improvements in hire purchase and credit card loans in the month with growth of +7.0% YoY (vs. Nov12: +6.6%) and +1.8% YoY (vs. Nov12: +1.2%) respectively.

The business loan growth was lower at 9.2% YoY compared with the 10.6% recorded in Nov12, dragging by two major sectors in the business loan segment, namely; construction and anufacturing. The growth rates in both the sectors fell to 10.6% (vs. Nov12: +12.6%) and 3.6% (vs. Nov12: +5.0%) YoY, respectively.

First ever dip in loan disbursement. Loan disbursement shrank by 7.9% YoY in December versus the positive growth in Dec11. Loan application again showed a decline of -15.5% in Dec12 vs. -18% in Nov12. This was largely due to the decreased loan applications in the manufacturing and household segments. There was also a significant decline in loan approvals of -20.7% YoY (vs. -3.2% YoY in Nov12). On the overall, the indicators are showing signs of a further slowdown in the loan growth momentum.

Deposit growth also slowed to +8.3% YoY. Total deposit in 2012 was at RM1408.3b, rising a slower +8.3% YoY (vs. +11.15% in Nov12). The fall of 285bps was because of the decline in fixed deposit, foreign exchange and other deposits. The loan-to-deposit ratio meanwhile has risen marginally by 30bps from 78.4% in Nov12 to 78.7% in Dec12.

Minor increase in interest spread. The 3-month deposit rate remained intact at 2.98% and the average lending rate for the year achieved 4.7%. Interest spread surged from 1.67% in the previous month to 1.72% in Dec12. However, we still expect an overall margin compression in 2013 by 10-20bps based on historical.

Healthy asset quality as a whole. In Dec12, impaired assets reached RM22.1b with a net impaired ratio of 1.40%. The negative trend was mainly due to the tightened lending rules implemented by BNM. Loan loss coverage dived 100.9% in Dec12 vs. the 101.9% in Nov12. The overall provision to total loan for the year hit 2.0%. Asset quality improved in banking industry 2012.

2013 Outlook. Given our view that the Responsible Finance policy will continue to promote a healthier albeit slower household lending portfolio growth, the momentum of the system loan growth will hence likely be lower for 2013.

Our base case estimate for the system loan growth for 2013 is in the range of 9%-10%, or 1%-2% lower than 2012. Together with the ongoing interest margins headwind, there are limited pportunities to drive the earnings growth for banks materially beyond our current expectation of a high single-digit to low-teen growth.

In addition, with the already mid-cycle valuation, we believe that a valuation multiple expansion is also unlikely. Hence, we are increasingly looking to thematic plays within the banking sector to search for outperformers in 2013.

We are maintaining our OVERWEIGHT call on the sector. We have OUTPERFORM calls on MAYBANK (TP: RM10.40), RHBCAP (TP: RM8.30), CIMB (TP: RM8.20), AMMB (TP: RM7.40), AFFIN (TP: RM4.40) and BIMB (TP: RM3.60). AFG (TP: RM4.00), PBBANK (TP: RM16.80), and HLBANK (TP: RM15.20) are rated on MARKET PERFORM ratings.

Source: Kenanga