Loan growth in July moderated by 30bps to +3.9% YoY; not a surprise as applications and approvals were in the negative territory In June. However, July saw approvals picking up pace given the low interest rate environment. Our call on the sector remains OVERWEIGHT as valuations are attractive. In fact, most banks under our coverage are rated OUTPERFORM: - AFFIN (TP: RM2.45), ABMB (TP: RM3.45), AMBANK (TP: RM4.75), BIMB (TP: RM4.80), CIMB (TP: RM6.45), MAYBANK (TP: RM9.70), MBSB (TP: RM1.10), PBBANK (TP: RM24.10) and RHBBANK (TP: RM6.05). Only HLBANK (TP: RM17.30) is at MARKET PERFORM.

July 19 loans saw a further drop, shedding another 30bps to +3.9% YoY (June 18: +4.2% YoY) to RM1,729b. On a MoM basis, it was flattish. Both Business and Household continue to moderate; Business slowing down by 50bps to +2.9% YoY with Households down at +4.9% YoY (-10bps). On an annualised basis, loans shed another 40bps to end at +2.3% for Jul 19. No clarity in the economy led to the moderation in Business as working capital and construction moderated to +1.6% each (shedding 70bps and 180bps, respectively). Slowdown in PF (-120bps to 2.0%) and declined HP (-50bps) to -0.8% were the main contributor in Household’s slowdown. Moderation in loans can also be attributed to repayments outpacing disbursements - Jul 19 also saw both repayments and disbursements rebounding (Repayments: +4.5 YoY vs June 19: -9% YoY) vs disbursements (+2% YoY vs June 19: -12% YoY). Slower disbursements were evident in Households (+1% YoY vs June 18: -7% YoY) while Business disbursements were stronger (+2% YoY vs June 19: -13% YoY).

Overall net financing in the system moderated by another 30bps to +5.3% YoY with both loans and corporate bonds shedding 30bps to +3.6% YoY and +10.3% YoY, respectively.

Source: Kenanga Research - 4 Sept 2019