June’s  banking  statistics  were  largely  positive  as:  i)  loans  growth gathered  further  momentum,  up  1.3%  m-o-m vs May’s 0.9%  m-o-m, driven  by  loans  to  businesses,  ii)  loan  approvals  stood  at  a  12-month high,  and  iii)  asset  quality  improved  m-o-m.  Thus,  we  view  the  recent correction in share prices as a buying opportunity for  our top picks, ie CIMB, AMMB and Maybank. Retain OVERWEIGHT on the sector.

- June 2013 system loans growth gathered momentum, up 1.3% m-o-m vs May’s 0.9%  m-o-m.  This  was  mainly  due  to  loans  to  businesses expanding by a quicker pace of 1.7% m-o-m (May: +1.1% m-o-m), while loans  to  the  household  segment  grew  1%  m-o-m  (May:  +0.8%  m-o-m). Consequently,  annualised  loans  growth  stood  at  10.2%,  up  from  an annualised  pace  of  8.4%  at  end-March  2013,  but  in  line  with  our  10%-11% growth expectations. Y-o-y, however, system loans growth eased to 9.1% y-o-y vs 9.3% y-o-y in May 2013, but as mentioned previously, we believe this is largely a reflection of the base effect. 

- Loans pipeline improved. June applications were MYR66.2bn (-13% y-o-y;  -1.7%  m-o-m).  Applications  from  the  business  segment  were  down m-o-m  to  MYR27.7bn  vs  MYR31.1bn  in  May  2013,  cushioned  by stronger  loans  demand  from  households  (MYR38.6bn  vs  May’s MYR36.2bn). On a more positive note, monthly loan approvals continued to rise, with approvals in June hitting MYR35.2bn (-5.5% y-o-y; +3.3% m-o-m)  ie  the  highest  since  June  2012.  Business  loan  approvals  rose  4% m-o-m  (-20%  y-o-y)  to  MYR15bn,  while  approvals  for  household  loans rose 2.8% m-o-m (+9.5% y-o-y) to MYR20.2bn. The improvement in loan approvals bodes well for loans growth ahead and helps support our view that growth in 2H13 would gather momentum.  

- Asset  quality.  Absolute  gross  impaired  loans  declined  1%  m-o-m  (-4% y-o-y), resulting in the gross and net impaired loan ratios improving by 3-4bps  m-o-m  to  1.96%  and  1.33%  respectively.  System  loan  loss coverage (LLC) stood at 99.8% as at end-June 2013.

- Total  system  deposits  rose  8.1%  y-o-y,  resulting  in  system  loan  to deposit ratio (LDR) rising m-o-m to 82.8% from 81.6% at end-May 2013.  

- Dilution  in  ALR  the  main  negative.  In  our  view,  the  main  negative  in June  statistics  was  the  dilution  in  average  lending  rate  (ALR)  by  -8bps m-o-m to 4.53%, although deposit rates were stable. This suggests that net  interest  margins  (NIMs)  remain  under  pressure,  the  extent  of  which will be revealed in the upcoming 2QCY13 results season. 

- Share  price  correction  presents  buying  opportunity.  We  see  the recent  correction  in  share  prices  of  banking  stocks  as  a  knee-jerk reaction to Fitch’s recent report and think this presents an opportunity to accumulate  fundamentally  robust  banking  stocks.  Valuations  remain decent while June’s statistics point to a better 2H13 for the banks.

Source: RHB