Jan 19 loans saw a resilient but moderating trend as loans growth shed 10bps to +5.5% YoY. Both Business and Households saw moderation in trend. Moderate indications continued as both applications and approvals fell 5.5 and 4.8% YoY, respectively. With uncertainties and volatility still prevailing, our NEUTRAL stance is under review. Our OUTPERFORM call for the banks under our coverage, i.e. AFFIN (TP: RM2.60), ABMB (TP: 4.45), AMBANK (TP: RM4.95), BIMB (TP: RM5.05), MAYBANK (TP: RM10.20) and MBSB (TP: RM1.15). The others are rated as MARKET PERFORM.

Resilient beginning but moderating…Loans growth for 2019 begins strongly at (+5.5% YoY vs Dec 18: +5.6% YoY), to RM1,678b) but MoM moderated by 30bps to +0.3%. Performances were mixed as Business started strongly (+5.3% YoY vs Jan 18: +2.1%) whilst Households moderated (+5.6% YoY vs Jan 18: +6.4% YoY). Business and Households shed 20bps each from Dec 18. On an annualized basis, moderation was significant with loans at +3.6% YoY (vs Jan 18: +5.5% YoY). The moderation in Business was exemplified in loans for Purchase of Securities and Other Purposes (at +6.7% and +11.9% YoY vs Dec 18: +7.1% and +12.9% YoY, respectively. Working Capital saw an uptick of 10bps (from Dec 18) to +5.5% YoY. Both purchase of residential property and passenger cars moderated at +7.4% and +7.6% YoY (vs Dec 18: +7.4% and +7.6% YoY, respectively) while the credit cards space gained 60bps to +2.6% YoY). 18: +5.5% YoY). Jan 19 also saw higher loans repayments +14.2% YoY vs. disbursements of +11.0% YoY (Dec 18: +22.4% vs. +13.2%) which contributed to the slight moderation in loans for Jan 19. Business repayments outpaced disbursements (+16% YoY vs +13% YoY), while Household repayments outpaced disbursements (+9 YoY vs +6% (YoY). Overall net financing in the system shed 30bps to +5.5% as demand for both loans and corporate bonds slipped, with loans shedding 10bps to +5.0% YoY while corporate bonds shed 70bps to +7.3% YoY

Weak overall sentiments… The moderation in outstanding loans was compounded by weak sentiments as loans applications fell 5.5% YoY to RM70,654b led by falling applications from Business (-10% YoY vs Dec 18: +13% YoY) to RM34,519b and Households at -0.7% YoY (vs Dev 18: -2.2% YoY) to RM36,134b. Falling Business applications were led by Working Capital

and Purchase of Securities (-14.% YoY and -27.0% YoY respectively) with residential mortgages sliding 130bps to +6.0% YoY. Fall in Households applications were led by HP and credit card applications (-8% YoY and -14% YoY, respectively vs Dec 18: - 21% and -3% YoY, respectively).

Weak start for approvals. Compounding the weak applications was the falling approvals (-4.8% YoY vs Dec 18: -8.5% YoY) as both Business and Households approvals slid further. (Business approvals slid further (-8.3% YoY) to RM15,431b (vs Dec 18:- 13.0%). Falling Households approvals moderated (-0.9% YoY vs Dec 18: -2.1% YoY) to RM15,143b. Falling Business approvals were led by Purchase of Securities (-37% YoY vs Dec 18: +54% YoY) and Other Purposes (45% YoY vs Dec 18: -70% YoY). Working capital approvals rebounded to +18% in Jan 19. For Households, the moderation in falling applications was attributed to a moderate fall in HP (-1% vs Dec 18: -12%). Approvals for credit card fell further (-25% vs Dec 18: 21%). For Jan 19, approval rate in the system slid 11ppt to 43.3% dragged by Business (44.7% vs. Dec 18: 59.1%) with households at 41.9% (vs. Dec 18: 44.4%).

As loans moderated, so do deposits. Liquidity is still stable for Jan 18, despite deposits moderated and shedding another 110bps to +7% YoY to RM1,877b. While CASA fell (-2% YoY), the remainder moderated notably FDs (+4% YoY vs Dec 18: +6% YoY) and Other Deposits accepted (+6% YoY vs Dec 18: 12% YoY). Despite the fall in Deposits, CASA ratio remained stable at 26.5%. Loan-to-fund (LTF) ratio and loan-to-deposit ratio (LDR) were relatively stable at 83% and 89%, respectively, with excess liquidity to total deposits falling by 50bps to 10.6%. Average lending rate was up by 2bps for Jan 19 to 5.04%, so does the 3-month deposit which remained flat at 3.17% alleviating downside pressure on NIM.

Asset quality remained stable. Generally, asset quality continued to be stable as GIL remained stable at 1.45% (Dec 18: 1.45%) with Net Impaired loans ratio at 0.91% (vs Dec 18: 0.91%). While Households’ GIL remained steady at 1.09%, Business shed 1bps to 1.80% for Jan 19.

Loans growth prospect in 2019 seems to be challenging ahead with the prevailing uncertainties. Loans should be supported by resilient households on account of accommodative interest rates and stable asset quality. From the recent 4Q18 results, the banks in our universe guided for moderate loans for 2019 driven by Households. We expect 2019 loans growth to be <5%. Household demand will be supported by stable employment and wages with inflation looking subdued.

The consistently improving asset quality will, in our opinion, sees banks having a healthier appetite for household loans and Personal Financing and we would not be surprised if competitive lending rates resurface (in order to prop up demand) putting downside pressure on NIM. The moderation in deposits and excess liquidity is a concern as NIM will be under pressure as funding costs are elevated should deposits intake intensify.

With uncertainties on both domestic and external fronts prevailing, potential total return in our banking universe is seen at ~6%; with no visible catalyst and potential game changer ahead. Our Neutral is under review present as we have a number of OUTPERFORMers in our coverage, i.e. AFFIN (TP: RM2.60), ABMB (TP: RM4.45) AMBANK (TP4.95), BIMB (TP: RM5.05), (TP: RM6.10), MAYBANK (RM10.20) and MBSB (TP: RM1.25). The other banks are rated as MARKET PERFORM.

Source: Kenanga Research - 4 Mar 2019