Sept 2019 loans remained soft (+3.8% YoY) but showed improvement on a QoQ and annualised basis. So do applications and approvals, weak for Sep but improving QoQ. While Business dipped, Households growth improved in Sep by 10bps to +4.8% YoY. Both asset quality and approvals in the system remained resilient and stable; coupled with accommodative interest rates, loans momentum will gain traction ahead. At current MoM pace (+0.5%), we anticipate loans growth to end 2019 at +~5% YoY. Our sector call remains OVERWEIGHT as valuations are attractive. In fact, most banks under our coverage are 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 a MARKET PERFORM.
Slightly moderating but rising QoQ and on an annualised basis. Sept loans grew marginally slower at +3.8% YoY (Aug 2019: +3.9% YoY) to RM1,747b. On a MoM basis, loans moderated by 10bps to 0.5%. While Business loans growth moderated 20bps to +2.9% YoY, Households (HH) saw a 10bps uptick to +4.8% YoY. The flattish trend can also be attributed to the pace of repayments falling faster than the fall in disbursements; -4.5% YoY vs -3.5% YoY (vs Aug 2019: +0.9% YoY vs +1.0% YoY). While Business disbursements fell 6.4% YoY, Households continued to be on the uptrend rising 5ppt to +6.0% YoY. QoQ, loans continued on an uptrend, adding another 30bps to +1.1% while on annualised basis it added 40bps to +3.3% YoY.
Moderation seen in Business which was dragged by moderation in working capital (+1.6% YoY vs Aug 2019: +2.1% YoY) while HH saw resilient support from the mortgage segment at +7.2% YoY (vs Aug 2019: +7.2% YoY) while HP continued to be in negative territory at 1.7% YoY (vs Aug 2019: -1.6% YoY).
Overall net financing in the system continued to be resilient at +4.8% YoY (vs Aug 2019: +4.9% YoY) as corporate bonds inched 10bps higher to +9.0% YoY.
Weak application in Sept YoY but rebounded QoQ… Loan application continued to be weak for Sept, falling 6.1% YoY (Aug 2019: -0.3% YoY); with Business dragging applications, falling 12.5% YoY (Aug 2019: +9.95 YoY) but HH rebounded at +1.8% YoY (Aug 2019: -9.7% YoY). However in a QoQ basis, loan application rebounded to +6.0% QoQ (June 2019: -10.3% YoY) led by Business (+10.4% QoQ vs June 2019: -11.3% YoY with HH following the same trend at +1.8% QoQ (vs June 2019: -9.3% QoQ).
… so do approvals in tandem with applications, approvals fell 8.7% YoY (Aug 2019: +0.2% YoY) led by Business (-17.2% YoY vs Aug +4.2% YoY) while HH rebounded +4.2% YoY (Aug 2019: -3.4% YoY). While Business applications plunged at -3.4% QoQ (vs June 2019: -3.3% YoY), HH showed diminishing decline rate at -1.3% QoQ (vs June 2019: -2.2% QoQ). Approval rate in the system for Sept continued to be resilient at 47% as HH remained stable at 45% while Business fell 1ppt to 49%.
FDs tapering indicating deposit competition might be wavering. Not surprisingly, sombre credit demand saw deposits continuing its moderation by 40bps to +4.2% YoY to RM1,974b – but still outpacing loans by 40bps; hence, excess liquidity moderated by 50bps to 10.5%. Given the soft credit demand, not surprisingly, FDs was flat at +5.9% YoY, indicating deposit competition might be tapering. Adding to this positive note is that CASA ratio inched by 30bps to 26.3%. Loan-to-deposit (LDR) ratio and Loan-to-Fund (LTF) ratio were relatively stable at 89% and 83%, respectively. 3-month FD fell 7bps for Sept to 2.85% outpacing average lending rate (by 6bps to 4.76%) as repricing of deposits took full effect since the May 2019 OPR cut.
Asset quality remained resilient. GIL and NIL in September remained stable at 1.61% and 1.05%, respectively, although rising by 5bps and 11bps from a year ago. While GIL for Business dipped by 1bps to 1.03%, HH saw a 1bps increase to 0.58%. Rising impaired HH loans were evident from Personal Use and Credit Card (by 6 and 4bps to 1.90% and 0.94% on a segmental basis, respectively) while mortgages rose by 3bps to 1.15% (on a segmental basis). Loan loss provisions fell 3% YoY (vs Aug 2019: -4%) with LLC falling 1ppts (from Aug 2019) to 89% indicating the systems’ confidence in the strength of their asset quality.
While Sept loans were still a dampener, we take heart that on an annualized and QoQ basis, loans growth seemed to be improving. The accommodative interest rates seemed to be gaining traction for the Households and we expect further credit demand form this segment in the coming months ahead. Supporting the demand are the resilient approval rates in the system which is 3ppt higher than its 4-year average. At the current pace, MoM, we expect loans growth in the system of ~5% (vs 2018: +7.1%). Valuations of our banking universe are attractive and undemanding with most at OUTPERFORM: - AFFIN (TP: RM2.45), ABMB (TP: RM3.30), AMBANK (TP: RM4.75), BIMB (TP: RM4.80), CIMB (TP: RM6.45), MAYBANK (TP: RM9.70), MBSB (TP: RM1.10), PBBANK (TP: RM25.10) and RHBBANK (TP: RM6.05). HLBANK (TP: RM17.30) is rated as a MARKET PERFORM, as we put a higher discount on concerns over its Chinese associate.
Source: Kenanga Research - 4 Nov 2019
Created by kiasutrader | Aug 26, 2024