• We  remain  encouraged  by  the  healthy  demand  for  loans,  with  loan applications up 1% m-o-m/+41% y-o-y,  driven by the business  segment (+8%  m-o-m;  +62%  y-o-y).  We  believe  the  stronger  demand  for  loans, especially  higher  applications  from  the  business  segment,  helps support  our  view  of  an  improving  economic  outlook ahead.  As  banks are a good proxy to the economy, we retain our OVERWEIGHT call.
• Loan  applications  stayed  robust,  up  1%  m-o-m  (+41%  y-o-y)  to MYR75.5bn.  Business  loan  demand  rose  8%  m-o-m  (+62%  y-o-y), driven  by  higher  applications  from  the  manufacturing  (+78%  m-o-m; +157% y-o-y) and finance, insurance and business activities (+16% m-om; +75% y-o-y) segments. Household applications  fell 4% m-o-m (+27% y-o-y),  mainly  on  lower  loan applications  for  passenger  car   purchases. Otherwise,  loan  applications  for  residential  property  purchases  stayed
• healthy  (-2% m-o-m; +60% y-o-y) (see Figure 14)  and appears to have started to filter down to loan approvals for residential property purchases (+7%  m-o-m;  +45%  y-o-y).  This  helped  support  total  household  loan approvals  (+3%  m-o-m;  +20%  y-o-y),  but  business  loan  approvals  fell 17% m-o-m (-37% y-o-y), leading to the  slight  decline in overall system loan approvals (-4% m-o-m; -9% y-o-y).
• System  loans  growth  stable  y-o-y.  System  loans  rose  0.5%  m-o-m (+9.9% y-o-y) vs Oct 2013’s +0.8% m-o-m (+9.9% y-o-y), with the slower m-o-m growth due to softer loan disbursements to both businesses   and households.  Loan  disbursements  to  businesses  eased  slightly  to MYR54.7bn  in  Nov  2013  (Oct  2013:  MYR56.5bn),  but  still  above  preGeneral  Election’s  MYR52.5-54bn  (excluding  Feb  2013’s disbursements).  Overall,  both  business/household  loans  growth  were similar  to  Oct  2013’s,  ie  +7.4%  y-o-y/+11.9%  y-o-y,  while  annualised loan growth stood at 9.8% – the lower end of our 10-11% forecast.
• Absolute  gross  impaired  loans  saw  a  slight  uptick,  up  1%  m-o-m (+4%  y-o-y).  Gross/net  impaired  loan  ratios,  however,  were  broadly unchanged  m-o-m  at  1.98%/1.36%  as  at  end-Nov  2013.  System  loan loss coverage dipped m-o-m to  97.1% from  97.7%  as at end-Oct  2013 due to the higher absolute gross impaired loans.
• System  deposits  rose  7%  y-o-y  (flat  m-o-m).  Thus,  system  loan-todeposit ratio increased by 70bps m-o-m to 84.8% as at end-Nov 2013.
• Lending and deposit rates stable.  The average lending rate (ALR) for banks was broadly stable m-o-m at 4.56% (+2bps m-o-m) and, generally, has hovered around the 4.5-4.55% mark since June 2013.
• Investment  case.  We  remain  OVERWEIGHT  on  the  sector  as  banks are well poised to benefit from the pickup in GDP expected for this year, underpinned  by  the  various  economic  programmes.  Maybank,  Hong Leong Bank and CIMB are our BUYs.

Source: RHB