Loans growth for April 18 improved from March 18 at +4.8% YoY, but MoM growth remained steady at +0.4% MoM. Loan applications and approvals rebounded in April driven by business segment. With both applications and approvals going strong ahead, indication points to strong growth ahead albeit for the short-term. Our view of moderate loans (with a downside bias) ahead still holds; thus, we are maintaining a Neutral outlook for the sector. Most of the banking stocks in our universe are kept at Market Perform with the exceptions of AFFIN (TP: RM2.70), AMBANK (TP: RM4.50), BIMB (TP: RM4.90, CIMB (TP: RM6.85), MBSB Bank (TP: RM1.40) and RHBBANK (TP: RM6.15) which are at OUTPERFORM.

Loans accelerating in April driven by households. Outstanding loans in April grew higher by 40bps at +4.8% YoY (March 18: 4.4% YoY) to RM1,610m. On a MoM basis, loans were steady at +0.4% (March 18: +0.4%) MoM. Again, as it had been this year, loans were driven by households inching 10bps higher to +6.7% (March 18: +6.6% YoY) with business loans reaching the +3.0% mark for the first time this year, inching 70bps to +3.0% YoY (March 18: 2.3% YoY). The slight uptick in loans can also be attributed to higher disbursements at +11% YoY (March 18: (March 18: -1.6% YoY) outpacing repayments at +7.8% YoY (March 18: -0.1% YoY). Disbursements in March were higher from Households at +18.5% YoY (March 18: +5.3% YoY) vs business at +8.5% YoY (March 2018: -3.6% YoY). On an annualized basis, loans were steady at +4.8% YoY (vs March annualized growth of +4.8% YoY). Overall financing in the sector inched higher by 30bps to +6.6% YoY (March 18: +6.3% YoY) driven by corporate bonds (14.3% YoY vs March 18: +14.2% YoY) and loans at +4.2% YoY (March 18: +3.9% YoY).

Mortgages, the driver for households with demand for business loans across the board. As usual, mortgages continued to be the main driver for households despite dipping slightly by 10bps to +8.9% YoY (March 18: +9.0% YoY). Personal financing continued its uptick, up by 60bps to +6.0% YoY (it’s highest in 19 months vs March 18: +5.4% YoY). HP picked up by 10bps to +0.6% YoY (March 18: +0.5% YoY) after easing in March 18. The rise in Business loans was driven by demand for: (i) Working Capital (+1.3% YoY vs March 18: 0.3% YoY), (ii) Other Purpose (+11.1% YoY vs March 18: +11.2% YoY), (iii) Construction (+10.6% YoY vs March 18: +10.6% YoY), and (iv) Non-residential property (+2.0% YoY vs March 18: +1.6% YoY).

Applications and Approvals rebounded in April, indicating business and consumer confidence ahead of GE14. After a flat March, loans applications surged by +20.1% YoY driven by business loan applications (+34.1% YoY vs March 2018: +10.4%) with Households rebounding to +8.5% YoY (March 2018: -8.9% YoY). However, on a MoM basis, loan applications moderated to +1.4% MoM (vs March 2018: 33.03% MoM) attributed to a higher base. Demands for business applications were driven by: (i) Working Capital (+51.3% YoY vs March 2018: 11.1% YoY), (ii) Other Purpose (+43.7% YoY vs March 18: +45.7%), and (iii) Purchase of non-residential property (+20.9% YoY vs March 2018: +7.7% YoY). Household applications were coming from: (i) Mortgages rebounding at 6.4% YoY (vs March 2018: -11.1% YoY), and (ii) Personal Use (+32.5% YoY vs March 2018: +18.4% YoY).

Approval rate for April 2018, rebounded by +21.6% YoY (-0.5% MoM), driven by Business loans rebounding at 34.5% YoY (March 2018: -9.1% YoY). Household too rebounded at +10.1% YoY (vs March 2018: -5.7% YoY). Business Approvals were led by: (i) Working Capital (+25.5% YoY vs March 2018: 33.6% YoY), and ii) Purchase of non-residential property (+47.5% YoY vs March 2018: +22.1% YoY). Household approvals were led by: (i) Purchase of residential property (+7.1%YoY vs March 2018: -8.1% YoY), and ii) Personal Use (+56.1% YoY vs March 2018: 28.5% YoY).

Approval rate in the system dipped slightly by 80bps to 42.5% as Business approvals fell by 190bps to 43.6% whilst household inched higher by 50bps to 41.4%.

Liquidity ample. Deposits continued its rise in April rising by another 40bps to +5.6% YoY (March 2018: +5.2% YoY) with CASA and FD at +6.0% YoY and +5.1% YoY (vs March 2018: +6.3% and +4.9% respectively). CASA ratio remained steady at 26.8%. With deposits and loans rising in tandem, excess liquidity in the system continued to rise by 30bps to 12.2% (March 2018: 11.9%). There was marginal rise in loan-to-deposit (LDR) and loan-to-fund ratios (LTF) at 88.7% and 82.7%, respectively, (88.5% and 82.4% respectively). Despite higher demand for financing, average lending rate improved by 4bps to 4.90% with 3-month deposit rate still steady at 3.17%. With liquidity rising coupled with moderate loans, downside pressure on NIMs may ease ahead.

YoY, asset quality improved. On a MoM basis, net impaired loans for April eased by 2bps at 0.97% (or easing by 25bps YoY) with but gross impaired loans (GIL) easing 8bps YoY to 1.58% but inched slightly by 1bps MoM. Both business and household GIL inched slightly by 1bps each to 2.05% and 1.11% from the month before.

No change in Neutral outlook. No change in our Neutral stance for the sector ahead. While loans growth seems gaining ground with the improvement in both business and consumer segments post GE14 environment might see reversal coming from the business segment. However, consumer sentiment is likely to be improved alongside with stable energy prices and zero-rated GST in the coming 3Q. On a positive note with excess liquidity improving coupled with credit demand, NIM compression looks likely to be neutral with an upside bias. Moving forward (post GE), system loans growth is likely to moderate at 5-5.5% with a downside bias.

With the recent slide in share prices across the sector, we have OUTPERFORM call for most of the banking stocks in our universe with the exception of ABMB (TP: 4.40), HLBANK (RM18.70), MAYBANK (RM10.50) and PBBANK (RM24.65). We like BIMB (TP: RM4.90) and RHBBANK (TP: RM6.15). For RHBBANK, its loans are not heavily skewed to corporate; hence, exposure to controversial loans is believed to be minimal. For BIMB, retail financing is skewed to a higher contribution from personal financing, which gives higher yields coupled with its strong ROE that second only to PBBANK.

Source: Kenanga Research - 4 Jun 2018