Apr’s system data largely mirrored Mar’s data. Loan growth was broadly stable at +10.5% y-o-y with resilient household loan expansion partly offset by softer business lending. Both loan application and approval pipelines were stable mom. We expect business lending to pick up pace in 2H13 now that the election overhang has been removed. Overweight sector call retained with CIMB, AMMB and Maybank as our top picks. 

- Apr 2013 system loan growth was stable at +10.5% y-o-y (+0.6% m-om), as compared to Mar ‘13 of +10.6% y-o-y (+0.9% m-o-m). The trends were also largely similar to that in Mar, with loans to businesses expanding by 8.3% y-o-y (Mar ‘13: +8.7% y-o-y) while household loans continued to expand by a faster pace of +12.2% y-o-y (Mar ‘13: +12.1% y-o-y). 

- Loan pipeline also stable. Both monthly applications and approvals were also stable m-o-m. Monthly applications in Apr stood at MYR71bn, unchanged from Mar ‘13. Loan demand from businesses was sustained with monthly applications at MYR31bn (flat m-o-m) while household applications inched up to a new high of MYR40bn from MYR38bn in Mar ’13. The loan approval pipeline stood at MYR34bn, also unchanged from Mar ’13. Household loan approvals rose slightly to MYR21bn from MYR19bn in Mar ’13, offset by a marginal drop in approvals for business loans (MYR13bn vs. Mar ‘13: MYR15bn). The stable loan pipeline is consistent with feedback from the banks during the recent 1QCY13 reporting quarter, and supports our view that loan growth would pick up pace in 2H13 now that the uncertainties due to the elections have been removed. Thus, while YTD loan growth was just 8.3% (annualised), we are keeping our 10-11% estimate unchanged. 

- Asset quality. Absolute gross impaired loans was broadly stable m-o-m and thus, gross and net impaired loan ratios were relatively stable m-o-m at 1.98% and 1.35% respectively. Loan loss coverage ratio rose marginally to 100.3% from 99.4% at end-Mar ‘13. 

- LD and capital ratios. Total system deposits rose 7.3% y-o-y (+0.3% mo-m), leaving system LDR stable m-o-m at 81.5%. Banking system CET-1, Tier-1 and total capital ratios were also stable m-o-m at 12.1%, 13% and 14.3% respectively as at end-Apr ‘13. 

- Deposit and lending rates stable m-o-m. Nevertheless, we note from the recent results that NIMs were under pressure from lower asset yields. We expect this to persist as higher yielding loans continue to be rolled off the book and replaced by lower yielding loans. That said, we expect the pace of NIM contraction to slow down this year.

Source: RHB