Following  the  festivities  in  August,  September’s  numbers  generally improved.  Loan  growth  gathered  momentum,  driven  by  the  business segment on the back of stronger loan disbursements, while the month’s business loan disbursement  of MYR58bn was the highest post-GE and YTD.  Monthly  applications and approvals  also  rose  m-o-m  while asset quality was stable. Maintain NEUTRAL on the sector for now.

• September  loans growth  pick  up pace.  After the  slowdown in August due  to  the  Aidil  Fitri  and  Merdeka  festivities,  system  loans  growth  in September picked up 0.9% m-o-m  and  9.5% y-o-y  vs  August’s 0.7% mo-m and 9.3% y-o-y growth. Loans to businesses rose by a quicker 0.9% m-o-m  and 6.5% y-o-y  pace (vs August: +0.5% m-o-m/+6.2% y-o-y),  but household  loans  growth  was similar to that in August, perking up  0.9% m-o-m  and 11.9% y-o-y.  The stronger growth in  business loans was due to a  pickup  in  business  loan disbursements, which stood at MYR57.7bn compared  with  the  monthly  disbursements  of  MYR54-55bn  after  the General  Election.  September’s  disbursements  to businesses  were  also the  highest  YTD, although it is too early to tell  at this stage  whether the improvement was due to  heightening business activities  or the effects of “catching  up” from the shorter working month  in August.  The annualised loan growth of 10% was at the lower end of our 10-11% forecast.
• Leading indicators rebound. Both total applications and approvals rose m-o-m  to  MYR71.3bn  (August:  MYR66.9bn)  and  MYR33.9bn  (August: MYR32.6bn)  respectively  in  September,  led  by  the  business  segment. Loan  demand  from  businesses  rose  9.8%  m-o-m  to  MYR33.7bn  while business  loan approvals  rose 10.6% m-o-m to MYR14.6bn.  Household loan  applications  also  improved,  rising  m-o-m  to  MYR37.6bn  (August: MYR36.2bn) but approvals were flat m-o-m at MYR19.4bn.
• Asset  quality  stable.  Asset  quality  was  stable,  with  absolute  gross impaired  loans  staying  flat  m-o-m  (+2%  y-o-y).  Thus,  gross  and  net impaired  loan  ratios  were  also  broadly  stable  m-o-m  at  2%  and  1.4% respectively. System loan loss coverage, however, dipped to 97.6% from 98.2% as at end-Aug, mainly due to lower individual allowances.
• Total  system  deposits  rose  7.7%  y-o-y  (+0.6%  m-o-m)  while  the system loan-to-deposit ratio rose 70bps m-o-m to 83.9%, as at end-Sept.
• Lending and deposit rates stable.  The average lending rate  (ALR) for banks  was broadly stable  m-o-m  at  4.55%  (+1bp m-o-m),  but this was still lower than the ALR of around 4.7% in early 2013.  This suggests that net interest margins will continue to remain under pressure ahead.
• Investment case. We remain NEUTRAL on the sector in the absence of near-term  catalysts.  Further  ahead,  however,  banks  are  well  poised  to benefit  from  the  new  investment  cycle,  underpinned  by  the  various economic programmes. HL Bank and CIMB are our sector picks.

Source: RHB