Banking - Non-Household Loans Flat MoM

Loan growth tapers off. Annualized loan growth for Jan-Aug 2012 tapered off for the second month running to 11.4% from 12.7% in Jan-June and 11.9% in Jan-July. The moderation was largely led by slower non-household (HH) loan growth, mitigated by faster momentum for HH loans. Our loan growth forecast of 11.1% for 2012 and 10.2% for 2013 are maintained. Our BUYs are HL Bank, HL Financial Group and Public Bank and we maintain a SELL on CIMB.
 
Annualised loan growth of 11.4% (11.9% in Jan-July). HH loan growth has continued to be resilient and continues to expand at a steady pace of 1% MoM. As such, annualized HH loan growth was a faster 10.7% in the first 8 months of 2012 vs 10.4% in Jan-July. Non-HH loans, however, have been flat MoM for the past two months already, leading to a tapering off of annualized non-HH loan growth off to 12% from 13.7% in the first 7 months.
 
Loan applications down again. Total loan applications were down again in Aug (-10.8% MoM, -8.8% YoY), this being the third consecutive month of sequential decline (July: -5% YoY, -18% MoM). The decline was across most loan classes (except HP) and mortgage loan applications dropped for the third consecutive month. Channel checks with the banks do point to the fact that property loan applications have in fact moderated and that it takes on average about 6 months before these numbers translate to loan outstanding numbers. As such, we would expect HH loan growth to moderate further in 2013.
 
Spreads were stable but remain low. The spread between average lending and fixed deposit rates rose a marginal 3 bps to 1.69%, but this is after having contracted a hefty 18bps MoM to 1.66% in July, an all-time low. Most banks continue to guide for margin compression due mainly to the replacement of older mortgage loans in their portfolio with newer ones at lower yields.
 
HH NPLs rise. While industry NPLs continue to trend down both in absolute and percentage terms, August saw an uptick in absolute NPLs across most consumer segments ie hire purchase, mortgages, personal loans, credit cards and share financing. Ratio-wise, the industry’s gross NPL ratio improved marginally to 2.17% in Aug from 2.18% in July.