System loan growth picked up pace… September loan growth picked up pace, up by 9% YoY/1.3% MoM (vs August: 8.6% YoY/0.7% MoM), thanks to stronger loan disbursements to the business segment (September: MYR70bn vs August: MYR66bn). Consequently, loans to businesses expanded by 6% YoY (August: +5% YoY), led by loans to electricity, gas and water supply (+33% YoY), real estate (+14% YoY), transport, storage and communication (+14% YoY) and construction (+13% YoY) sectors. Meanwhile, household loan growth eased to 11.1% YoY (August: +11.3% YoY). Loans for the purchase of securities (+16% YoY) and residential mortgages (+14% YoY) were healthy, partly offset by slower growth in consumption credit as well as hire purchase (+4% YoY). Although annualised loan growth of 8% trailed our 9-10% estimate, our numbers can still be met, assuming growth of at least 1% MoM in 4Q14.

September loan leading indicators improved MoM and YoY, with applications up 4% MoM/7% YoY while approvals rose 10% MoM/12% YoY. Similar to August, the higher applications and approvals were driven by the business segment (applications: +6% MoM/+15% YoY; approvals: +25% MoM/+20% YoY). These points to stronger business lending activities in 4Q14. As for the household segment, loan applications rose 2% (flat YoY) while loan approvals were flat MoM (+6% YoY).

System deposits up 0.9% MoM (+6% YoY). Thus, system loan-to-deposit ratio climbed 50bps MoM to 86.8%, as at end-September.

Average lending rate for banks rose 3bps MoM to 4.72%, as loan repricing continued post July’s overnight policy rate (OPR) hike. The 3-month interbank rate, however, was relatively stable MoM at 3.76%.

Investment case. We remain NEUTRAL on the sector with Maybank and AMMB as our BUYs.