Jan  2014 system loans growth got off to a good start, rising 11% y-o- y (2012:  +10.6%  y-o-y)  as  the  strong  momentum  in  business  loan disbursements towards end-2013 was sustained. This is consistent with (and helps reinforce our view regarding) a pickup in business lending activities  this  year.  As  banks  are  a  good  proxy  to  the  economy,  we maintain our OVERWEIGHT sector call.

• System  loans  growth  stable  y-o-y.  System  loans  growth  got  off  to a good start, rising 11% y-o-y (2013: +10.6% y-o-y). Loan disbursements to  businesses  stayed  robust  at  MYR67.5bn,  close  to  Dec  2013’s MYR69.7bn but significantly above the MYR52.5bn recorded in Jan 2013 thanks to stronger loan disbursements to the manufacturing, wholesale and  retail  trade, construction  and  real  estate  sectors.  Meanwhile household  loan  disbursements  were  stable  m-o-m  at  MYR26.8bn  (Jan 2013:  MYR25.2bn).  Thus,  business  and  household  loans  growth  in January stood at 9.9% y-o-y (Dec 2013: +8.8% y-o-y) and +11.9% y-o-y (Dec 2013: +12% y-o-y)  respectively,  while  the  annualised loan growth of 11.6% was ahead of our 10-11% forecast for 2014. We retain our loan growth expectation for now, as leading indicators suggest a moderation in loan growth ahead (see below).
• Monthly  loan  applications  and  approvals  soften.  System  loan applications  eased  15%  y-o-y  and  9%  m-o-m  to  MYR54bn.  Business loan  demand  fell  19%  y-o-y  (-11%  m-o-m)  while  household  loan applications  declined 11% y-o-y (-8% m-o-m) mainly due to lower loan applications  for  the  purchase  of  residential  properties.  Meanwhile, system loan approvals fell 14% m-o-m but were stable y-o-y. The drop was mainly due to lower business loan approvals (-7% y-o-y, -28% m-om). Household loan approvals were down 6% m-o-m but up 4% y-o-y, mirroring the trend in approvals for residential mortgages.
• Absolute  gross  impaired  loans  saw  a  slight  uptick,  up  1%  m-o-m (+1%  y-o-y)  possibly  due  to  the  festive  season.  The  gross  and  net impaired  loan  ratios,  however,  were  unchanged  m-o-m  at  1.8%  and 1.3% respectively as at end-Jan. System loan loss coverage  rose m-o-m to 104% from 100% as at end-Dec due to higher collective allowance.
• System  deposits  rose  7%  y-o-y  (-1%  m-o-m).  Thus,  system  loan-todeposit ratio increased by 90bps m-o-m to 85.5%, as at end-January.
• Lending and deposit rates stable.  The average lending rate (ALR) for banks was broadly stable m-o-m at 4.53% (-3bps 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, HL Bank and CIMB are our BUYs.

Source: RHB