Loans growth for June 2018 inched slightly ahead by 10bps to 5.0% YoY, adding another 40bps MoM to 0.7% MoM. Loan applications and approvals surged ahead due to the zero-rated GST and we expect acceleration in the months ahead. Our view of moderate loans (with a downside bias) ahead still holds due to the absence of clear catalyst with volatile domestic and external conditions still prevailing; thus, we maintain a Neutral outlook for the sector. Most of stocks in our banking universe are at OUTPERFORM with ABMB (TP: RM4.40), HLBANK (TP: RM18.7), MAYBANK (TP: RM10.10) and PBBANK (TP: RM24.65) at MARKET PERFORM.

Loans continued its uptrend post GE14. Nearly two months post GE14, outstanding loans continued its upward trek in June inching another 10bps to +5.0% YoY (May 2018: +4.9% YoY to RM1,626m. On a MoM basis, another 40bps was added to +0.7% MoM (May 18: +0.3% MoM). Households were still the main driver as it had been in the last six months, despite dipping by 50bps to +5.9% YoY (May 2018: +6.4% YoY) but the business segment was a surprise as its loans were up by +4.2% YoY (May 2018: +3.5% YoY) and still picking up pace since the beginning of the year. The slight uptick in loans can also be attributed to repayments (+14.4% YoY vs. May 2018: +3.3% YoY) keeping pace with disbursements (+16.0% YoY vs May 2018: +2.7% YoY). Household disbursements rebounded to +14.3% YoY (May 2018: -4.7% YoY) whilst business disbursement surged by another 11.4 ppt to +16.6% YoY (May 2018: +5.4% YoY). QoQ, outstanding loans was moderate at +0.5% QoQ vs 1Q18: +4.8% QoQ. On an annualized basis, loans surged by another 70bps to +5.3% YoY (vs. May 2018: +4.6% YoY). Overall net financing in the financial sector inched by another 10bps to +6.3% YoY (May 2018: +6.2% YoY as both corporate bonds and loans trek higher by another 20bps and 10bps respectively to +12.4% YoY and 4.4% YoY.

Uptick in personal financing and credit card from household loans, while business’ uptick was across the board. Deceleration in households loans were due to HP falling by 1.1% YoY with mortgages slowing by 50bps to +8.3% YoY (May 2018: +8.3% YoY). Personal financing and credit saw higher uptick in June, rising by 70bps and 100bps, respectively, to +6.7% YoY and +2.8% YoY (May 2018: +6.0% YoY and +2.8% YoY). Uptick in business loans was across the board with working capital, purchase of securities, other purpose and construction improving at +2.3%, +6.4%, +15.4% and +10.8% YoY, respectively (May 2018: +2.3%, +5.5%, +10.1% and +9.5% YoY respectively).

Approvals and applications surged ahead led by HP. Two months post GE14, loans applications rebounded in June to +13.3% YoY (May 2018: -9.2%) whilst on a MoM basis rebounded at +6.6% MoM (May 2018: -11.7% MoM). Both business and households rebounded at +18.0% YoY and +9.1% YoY respectively (May 2018: -6.9% and -11.2% YoY, respectively. Business applications were driven by working capital at +21.1% YoY (vs. May 2018: +18.6% YoY) whilst application for households were driven by HP at +43.5% YoY (May 2018: -4.6% YoY) as the government removed the GST in beginning of June. However, approvals were slower compared to applications despite surging by 5ppt to +5.4% YoY, driven by households (+13.8% YoY vs. May 2018: -11.7% YoY) as business fell 1.3% YoY after surging to +14.2% YoY. Fall in business approvals were dragged by fall in purchase of securities (-34.7% YoY vs. May 2018: +2.8% YoY) and purchase of non-residential property (-24.7% YoY vs May 2018: +0.9% YoY). Household approvals were underpinned by rebound in HP surging at +58.7% YoY (May 2018: -7.5% YoY). With loan applications outpacing approvals, approvals rate for June 2018 was 230bps higher to 48.1%. While business approvals rate remained steady at 50.8%, households saw a spike in approvals by 440bps to 45.5%.

Liquidity continued to shrink but still ample. Deposits outpaced loans in June 2018, growing another 30bps to +5.2% YoY (May 2018: +4.9% YoY) to RM1,814b primarily driven by intake of other deposits (+7.1% YoY vs. May 2018: +1.7% YoY) as both CASA and FDs slowed by 110bps and 60bps, respectively, to +3.9% YoY and +7.7% YoY. CASA ratio continued to remain steady at 26.7%, while excess liquidity fell by another 60bps to 10.3%. Both loan-to-deposit ratio (LDR) and loan-to-fund (LTF) ratio remained steady and ample and surged slightly 54bps and 90bps, respectively, to 89.6% and 83.9%. Average lending rate continued its improvement, accelerating by another 7bps to 5.05% with 3-month deposit rate steady at 3.15%.

Asset quality improving YoY and MoM. Net impaired loans continued to improve YoY falling by another 16bps to 1.04% (May 2018: 0.99%) with Gross Impaired Loans (GIL) easing by 7bps to 1.59% (May 2018: 1.60%). Both business and households impaired loans continued to improve on a YoY and a MoM basis, with business easing by 7bps YoY and 3bps MoM to 2.04% whilst households eased 2bps YoY but flat MoM.

Source: Kenanga Research - 2 Aug 2018