While YTD annualized loans growth inched up 24bps m-o-m to 13.4%, loans applications have fallen for 3 consecutive months, which suggests loans growth may
be peaking soon. On a brighter note, average lending rate spread is showing some stability indicating margin compression may have bottomed out. Maintain NEUTRAL on the banking sector as loans growth momentum wane in the months ahead. Hong Leong Bank is our top pick for the banking sector due to the latter’s transformation story to be a banking giant.
Loans growth may peak soon as loans applications fell
Loans growth gained momentum in September as YTD annualised growth increased 24bps m-o-m to 13.4%. However, lending indicators continued to show weakness as oans applications, approvals, and disbursement all fell m-o-m by 6.5%, 9.4% and 2.0% respectively. Loans applications, in particular, have fallen for 3 consecutive months to RM56.8bn, the lowest level since March 2011. These may suggest that loans growth may be peaking soon.
While loans to the household sector (+12.5% y-o-y) remains the key driver of loans
growth, its share of credit expansion has shrunk from 68% in 2009 and 58% in 2010 to 51% in 9M11. On the other hand, loans to the business sector are picking up pace (+15.4% y-o-y) on the back of implementation of ETP projects. Deposits growth picked up pace but LDR still near 8-year high
Deposits growth picked up pace growing by 2.8% m-o-m, outpacing loans growth of 1.2%. This resulted in loan-deposit ratio (LDR) and financing- deposit ratio declining
marginally to 81.9% (Aug: 82.9%) and 87.9% (Aug: 89.2%) respectively. That said, LDR remains at elevated level which is near an 8-year high. ALR spread stabilizes but still near 14-year low
Margins remain compressed in Sep although it is showing signs of bottoming out. BLR and average lending rate (ALR) remain constant m-o-m at 6.54% and 5.05% respectively while ALR-3 month fixed deposit spread is still near a 14-year low at 2.05% (Aug: 2.04%). Asset quality and capital ratios remain sound
Asset quality remains healthy as impaired loan ratio declined 2bps m-o-m to 1.96%
while loan loss coverage moderated 51bps m-o-m to 95.9%.
The banking system remained well-capitalised, with the risk-weighted capital ratio
and core capital ratio at 14.6% and 12.5% respectively.
Maintain NEUTRAL
We maintain our Neutral stance on the banking sector as loans growth momentum
wane in the months ahead.
Hong Leong Bank is our top pick for the banking sector due to the latter’s
transformation story to be a banking giant.
by ECM Libra
