Industry statistics for November are giving the same-old signals for the coming months with the following similar trends where: (i) system loans growth is slowing with leading indicators reinforcing such expectations, (ii) loan applications and approvals are heading southwards, (iii) assets quality regressed, and (iv) deposit-taking activities are still slower than loans. All in all, we maintain our NEUTRAL stance as there is no catalyst to look forward to, at least in the near-term. MAYBANK (TP: RM9.74) and RHBCAP (TP: RM7.26) are the OUTPERFORMs under our coverage. The rest are MARKET PERFORMs, save for AFFIN (TP: RM2.17) and CIMB (TP: RM4.06), which are UNDERPERFORMs.

YoY, system loans growth moderated in November to +8.4% YoY. November system loans growth was mixed; the business segment was slower but household segment was marginally higher. Business lending moderated to +8.4% YoY vs. October’s +9.8% YoY whilst the household segment inched 1.1ppts to +8.5% YoY. The slower loan growth was on the back of declining disbursements (YTD 2015: -2.8%), which were outpaced by the increase in loan repayments (YTD 2015: +7.0%), reinforcing our expectations of industry loan growth of between 7-8% for 2015.

Leading indicators suggesting slowing loans growth ahead as well. Loans application declined by 5.4 YoY (Oct: +12.8% YoY) while approvals declined faster by 11.0% YoY (Oct: -5.7% YoY). Demand for loans fell from the previous month where the household segment saw lending applications growth slowing to +3.6 YoY (October: +9.2% YoY) and the business segment declined excessively by 11.7% YoY (October: +15.8% YoY) Overall, October’s total loans application declined by 5.4% YoY (October: +12.8% YoY). Exacerbating the pressure, YoY loans approval declined further by 11.0% vs. the 5.7% decline in October 2015.

Assets quality and LLC regressed MoM. Assets quality and LLC regressed MoM. Net impaired loans (NIL) improved slightly on a YoY basis, where it fell by 4bps but on a MoM basis, rose by 2bps to 1.22%. Loans loss coverage (LLC) is still below the 100% mark (-91bps MoM, -6.7ppts YoY) and dipped slightly to 97.2% (Oct: 98.2%) as impaired loans grew faster than bad loans provisioning at 1.0% and 0.1% MoM, respectively.

System LDR decreased by 32bps MoM; excess liquidity improved for the month. System deposits moderated further in November (+3.2% YoY vs. October: +3.7% YoY). When compared to system loans growth, it remained at a weaker pace (+8.4 YoY vs. September: +9.1% YoY). However, the rapid pace of deceleration in loans growth by +70bps (vs. deposits deceleration of 50bps) saw industry’s loan-to-deposit ratio (LDR) declining by ~30bps to 86.0% (October: 86.3%). The ratio of current account to savings account (CASA) and excess liquidity to total deposit base stood at 25.2% (October: 25.4%) and 14.0% (October: 13.7%), respectively.

Interest spread declined by 1bps MoM. The interest spread between average lending rate (ALR) and 3-month fixed deposit rate (FDR) dipped to 1.40% (October: 1.40%) as the former fell to 4.53% (October: 4.54%), while the latter was stable at 3.13%. No surprises there as net interest margin (NIM) compression is inevitable given the persistent stiff price-based competition in the market.

Maintain NEUTRAL. We are still NEUTRAL on the sector. No change in our views on structural and cyclical headwinds such as: (i) slower economy, (ii) narrowing NIM, (iii) weak capital market activities, and (iv) higher credit costs plaguing the banking industry. No change in our cautious stance and selective stock picking strategy.

MAYBANK (TP: RM9.74) and RHBCAP (TP: RM7.26) are the OUTPERFORM stocks under our coverage. We like Maybank for its superior yield offerings of ~7% while we see deep value in RHBCAP with its Fwd. PBV merely trading at 0.7x compared to the industry’s Fwd. PBV of 1.5x.

The other stocks under our coverage are MARKET PERFORMs, save for AFFIN (TP: RM2.17), and CIMB (TP: RM4.06), which are UNDERPERFORMs (please refer to our peer comparison table at pg. 9).

Source: Kenanga Research - 4 Jan 2016