October  banking  statistics  revealed  a  surge  in  applications  for residential  mortgages  (+28%  m-o-m;  +44%  y-o-y).  While  it  may  be  too early to attribute the jump  entirely  to post-budget effects, we think it is possible  that  there  was  some  element  of  buying  ahead  of  the  2014 Budget  on  anticipation  that  further  tightening  measures  could  be announced. No change to our NEUTRAL stance on the sector.

• Household  loan  applications  surged  m-o-m.  Total  applications  rose 5% m-o-m (+16% y-o-y) to MYR74.8bn on higher household applications(+17%  m-o-m;  +18%  y-o-y),  but  business  loan  demand  fell  9%  m-o-m (+13%  y-o-y).  Of  note  was  the  rise  in  loan  applications  (+27%  m-o-m; +44% y-o-y) for residential property purchases (see Figure 14). Possibly, pre-2014  Budget,  buyers  flocked  to  buy  properties  ahead  of  further potential cooling measures. It will be interesting to see whether the jump in applications translates  into higher approvals. For Oct, however, loan approvals were flat m-o-m and y-o-y at MYR33bn, with higher household loan  approvals  (+2.6%  m-o-m;  +1.7%  y-o-y)  offset  by  lower  business loan approvals (-9% m-o-m; -2% y-o-y).
• System loans growth stable. System loans rose 0.8% m-o-m (+9.9% yo-y)  vs  Sept’s  +0.9%  m-o-m  (+9.5%  y-o-y).  Loans  to  businesses expanded  by  a  slower  0.6%  m-o-m  (+7.4%  y-o-y),  as  disbursements eased slightly to MYR56.3bn in Oct (Sept: MYR57.8bn). That said, this was still above the  MYR54-55bn  monthly business loan disbursements between  May-Aug  and  MYR52.5-54bn  pre-General  Election  (excluding Feb’s  disbursements).  Household  loans  growth  was  similar  to  that  in Sept  (+1% m-o-m; +11.9% y-o-y).  Overall, annualised loan growth stood at 10.1% – the lower end of our 10-11% forecast.
• Asset  quality  improved,  with  absolute gross  impaired  loans  down 0.7%  m-o-m  (+3.5%  y-o-y).  Thus,  gross  and  net  impaired  loan  ratios also  improved marginally  m-o-m  to  1.96%  and 1.35%  from  1.99% and 1.37%  respectively  as  at  end-Sept.  System  loan  loss  coverage  dipped 20bps m-o-m to 97.7% on lower individual and collective allowances .
• Total  system  deposits  rose  7.8%  y-o-y  (+0.5%  m-o-m).  The  system loan-to-deposit ratio rose 20bps m-o-m to 84.1%, as at end-Oct.
• Lending and deposit rates stable.  The average lending rate (ALR) for banks was broadly stable m-o-m at 4.54% (-1bp m-o-m)  and, generally, has hovered around the 4.5-4.55% mark since June.
• 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. Maybank, HL Bank and CIMB are our BUYs.

Source: RHB