November loans growth in the system remained stable at +4% YoY while MoM saw pick-up led by Households at +5.0% YoY while Business remained moderate at +2.0%. The pace of repayments also declined supporting the flat November loans. Moving forward, applications and approvals showed positive signs with surging applications from Business with Households remaining on an uptick. Business showed confidence emanating again with working capital applications surging 40% YoY while Households applications were driven by resilient mortgage growth at +8% YoY. While Household approvals rebounded +10% YoY, Business approvals declining pace shrinking to -3% YoY from Oct’s -23% YoY. This led to higher uptick (+4ppt) in Business approval rate to 44%.

Asset quality saw improvement since Aug 2019 shedding 2bps to 1.6%. Loan loss provisions declined 3% YoY translating to Loan Loss Coverage shedding 10ppt YoY to 89%, indicating the system’s confidence in asset quality.

Decline in excess liquidity to 10% growth not unexpected with moderate demand for deposits at 3% growth YoY in tandem with the moderate loans. However, the demand for deposits indicated NIM pressure will be alleviated as loans moderate. Liquidity is still ample as LDR and LTF remained resilient at 89 and 83%, respectively.

The rising applications and approvals are not a surprise given the seasonal year-end demand. We will not be surprised further of uptick ahead once the spectre of another rate cut is fulfilled. The accommodative interest rates seemed to be gaining traction for the Households and we expect further credit demand from this segment in the coming months coupled with uptick in Business demand once confidence on the economy grows. Deposit competition is easing coupled with a normalised credit charge which will support the banks’ earnings ahead. Valuations of our banking universe are attractive and undemanding with most at OUTPERFORM: - AFFIN (TP: RM2.45), ABMB (TP: RM3.45), AMBANK (TP: RM4.75), CIMB (TP: RM6.45), MAYBANK (TP: RM9.70), MBSB (TP: RM1.10), PBBANK (TP: RM22.10) and HLBANK (TP: RM18.90). BIMB (TP: RM4.70) and RHBBANK (TP: RM6.05) are at MARKET PERFORM given the recent clarity and timing of its restructuring plans (BIMB) while RHB’s share price close to its Fair Value. Our Top Pick is CIMB and MAYBANK benefitting from: (i) stable economy, (ii) fiscal push, and (iii) resilient Households

Households remained resilient. November loans saw a reverse trajectory with MoM uptick of +0.4% leading to +3.7% YoY (Oct 2019: +3.7%) to RM1,759b. While Business remained in moderation shedding 20bps to +2.4% growth, Households remained in resilient mode adding another 10bps to end at +5.0% growth for November. On a MoM basis, Business saw a 30bps uptick (October was flat MoM) while Households saw a 10bps uptick to +0.6% MoM growth. The flattish trend can also be attributed to the pace of Repayments shrinking (-1.4% YoY vs. Oct 2019: -7.8% YoY) similar to the pace in Disbursements (- 1.7% vs. Oct 2019: -7.9% YoY).

Moderation in Business underpinned by flattish demand for working capital at +1.3% YoY growth while Non-residential property saw a 20bps uptick to +2.7% growth while construction remained resilient at +3.5% growth. Household demand was still underpinned by a resilient mortgage, at +7.3% growth.

Source: Kenanga Research - 2 Jan 2020