Monday, October 1, 2012

Banking - Aug ‘12 System Data –Loan Growth And Leading Indicators Moderated Further

Aug ‘12 system loan growth moderated to +12.3% yoy (+0.6% mom), as compared to Jul ’12: +13% yoy (+0.5% mom). As highlighted in our report last month, we believed the impressive headline yoy growth for Jul was partly skewed by base effect, specifically, the lower base for business loans. In addition, we believe the festivities in Aug led to slower disbursements, which fell to RM75.8bn from RM82.8bn in Jul ’12. Thus, all in, loans to businesses expanded by a more moderate pace of 13.2% yoy (Jul ’12: +14.4% yoy) while household loan growth sustained a stable pace of 11.7% yoy, largely unchanged from Jul ’12.

Both system applications and approvals continued to ease mom. Absolute applications eased to RM55.4bn in Aug ’12 (-8.8% yoy) from RM62.1bn in Jul ’12 as applications from both businesses (-8.6% mom; -12.4% yoy) and households (-12.4% mom; -5.9% yoy) fell mom. As mentioned above, we believe this was partly due to the festivities. Similarly, system loan approvals moderated mom to RM30.4bn (-11.8% yoy) from RM32.7bn in Jul ’12 with lower approvals noted for both loans to businesses (-6.3% mom; -21% yoy) and households (-7.7% mom; -4.2% yoy). We are leaving our 2012F system loan growth projection of 10-11% unchanged. We expect system loan growth to moderate ahead with part of the moderation due to base effect. Apart from that, the slowing growth in loan approvals also suggests moderating growth ahead.

Asset quality stable mom at RM23.4bn (-14.4% yoy). Thus, systemwide gross and net impaired loan ratios were relatively unchanged at 2.17% (Jul ’12: 2.18%) and 1.48% (Jul ’12: 1.49%) respectively. Loan loss coverage ratio further improved to 101.7% from 100.9% at end-Jul ’12 mainly due to higher collective allowance set aside.

ALR stabilised. After the sharp 17bps mom plunge in ALR last month, Aug ’12 saw the ALR of commercial banks stabilise (+1bp mom to 4.72%). The longer-term trend shows that the ALR has been trending down, which suggests that margins would continue to remain under pressure ahead. The average BLR of commercial banks and 3-month FD rate remained unchanged mom at 6.53% and 2.98% respectively.

LD and capital ratios. Total system deposits grew 13.5% yoy (+0.6% mom) while the banking system’s LDR was stable mom at 82.1%. Both core capital and RWCR for the banking system were marginally down mom, with system core capital ratio at 12.7% as at end-Aug ’12 (end-Jul ‘12: 12.9%) while RWCR stood at 14.6%, down 10bps mom.

Investment case. Our Overweight stance is unchanged with Maybank, Public Bank and CIMB as our top picks for the sector.

Source: RHB Research - 1 Oct 2012

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