Banking sector
Maintain neutral
Banks unexpectedly hit a new high of 13.8% year-on-year (y-o-y) for loan growth in September, topping August’s already brisk 13.4% y-o-y. The September growth was the strongest since April 1998.
This was primarily driven by the acceleration of business loan growth from 13.1% y-o-y in July and 14.2% y-o-y in August to a sterling 15.4% y-o-y in September.
We suspect that there were some chunky disbursements of corporate loans which lifted the real estate loans by RM2.1 billion and finance loans by RM1.8 billion in September.
These two segments expanded by 25%-29% y-o-y. The momentum for two other business loan segments moderated — from 14.6% y-o-y in August to 13.3% y-o-y for manufacturing loans and from 17.5% y-o-y to 15.7% y-o-y for utility loans.
On the other hand, consumer loan growth fell marginally from 12.7% y-o-y in August to 12.5% y-o-y in September. The performance was mixed with a slight pick-up in the growth of residential mortgages (from 12.8% y-o-y in August to 13.1% y-o-y in September) and personal loans (from 18.2% y-o-y to 19% y-o-y) but a softening of auto loans (from 8% y-o-y to 7.8%) and credit card receivables (from 10.1% y-o-y to 9% y-o-y).
Loan applications: The industry’s loan applications fell by 5% to 7% month-on-month (m-o-m) in July to September. On a y-o-y basis, although applications reversed the 2.9% drop in August, the momentum remained weak at only 6.1% in September vs a 20%-37% pace in March to June.
The growth in applications for residential mortgages slowed down from 9.8% y-o-y in July and 4.8% y-o-y in August to a mere 2.4% y-o-y in September. Applications for working capital loans inched up 1% y-o-y in September, after falling by 10% to 17% y-o-y in the preceding two months.
Loan approvals: Loan approvals also showed signs of weakening, with the pace moderating from 10% y-o-y in August to 8% y-o-y in September. The momentum was even stronger at 24%-45% y-o-y in March to May, which helped to explain the swift loan growth in August to September.
As in the case of loan applications, the growth in approvals was supported by the 34.3% y-o-y jump in “other” loans in September.
On the other hand, auto loan applications pulled back by 7% y-o-y in September while growth in applications for residential mortgages moderated from 18.2% y-o-y in August to 4.3% y-o-y in September.
Applications for working capital financing expanded by 6.8% y-o-y in September, reversing the 27.1% y-o-y plunge in August.
Moderating loan momentum: We envisage a moderation of loan growth from a swift 13.8% y-o-y in September to 12% to 13% in view of (1) external uncertainties and (2) the slowing trend for loan applications, which points to a depleting loan pipeline.
Furthermore, we gathered that most banks have turned conservative in their lending practices as a precautionary measure against a rise in delinquencies.
We are projecting a gross impaired loan ratio of 2.6% to 2.8% for end-2011 vs 2.8% in September. We see limited risk of a spike in impaired loan ratios in the event of any economic slowdown given Malaysian banks’ track record of managing their NPLs. For instance, in 2009, the industry reduced its gross NPL ratio from 4.8% to 2.7% even though GDP contracted by 1.7%.
We remain “neutral” on the sector in the light of increased external uncertainties. A pullback in the equity market since mid-2011 with increased volatility does not bode well for investment banking deal flow. Loan growth is set to soften and the margin squeeze will persist though it should not be as severe as in the past one to two years.
On the flip side, we are still positive on (1) financing opportunities for projects under the Economic Transformation Programme (2) the sector’s undemanding CY12 P/E of 10.7 times and (3) attractive dividend yield of about 5%. — CIMB Equities Research, Nov 1
This article appeared in The Edge Financial Daily, November 2, 2011.
Maintain neutral
Banks unexpectedly hit a new high of 13.8% year-on-year (y-o-y) for loan growth in September, topping August’s already brisk 13.4% y-o-y. The September growth was the strongest since April 1998.
This was primarily driven by the acceleration of business loan growth from 13.1% y-o-y in July and 14.2% y-o-y in August to a sterling 15.4% y-o-y in September.
We suspect that there were some chunky disbursements of corporate loans which lifted the real estate loans by RM2.1 billion and finance loans by RM1.8 billion in September.
These two segments expanded by 25%-29% y-o-y. The momentum for two other business loan segments moderated — from 14.6% y-o-y in August to 13.3% y-o-y for manufacturing loans and from 17.5% y-o-y to 15.7% y-o-y for utility loans.
On the other hand, consumer loan growth fell marginally from 12.7% y-o-y in August to 12.5% y-o-y in September. The performance was mixed with a slight pick-up in the growth of residential mortgages (from 12.8% y-o-y in August to 13.1% y-o-y in September) and personal loans (from 18.2% y-o-y to 19% y-o-y) but a softening of auto loans (from 8% y-o-y to 7.8%) and credit card receivables (from 10.1% y-o-y to 9% y-o-y).
Loan applications: The industry’s loan applications fell by 5% to 7% month-on-month (m-o-m) in July to September. On a y-o-y basis, although applications reversed the 2.9% drop in August, the momentum remained weak at only 6.1% in September vs a 20%-37% pace in March to June.
The growth in applications for residential mortgages slowed down from 9.8% y-o-y in July and 4.8% y-o-y in August to a mere 2.4% y-o-y in September. Applications for working capital loans inched up 1% y-o-y in September, after falling by 10% to 17% y-o-y in the preceding two months.
Loan approvals: Loan approvals also showed signs of weakening, with the pace moderating from 10% y-o-y in August to 8% y-o-y in September. The momentum was even stronger at 24%-45% y-o-y in March to May, which helped to explain the swift loan growth in August to September.
As in the case of loan applications, the growth in approvals was supported by the 34.3% y-o-y jump in “other” loans in September.
On the other hand, auto loan applications pulled back by 7% y-o-y in September while growth in applications for residential mortgages moderated from 18.2% y-o-y in August to 4.3% y-o-y in September.
Applications for working capital financing expanded by 6.8% y-o-y in September, reversing the 27.1% y-o-y plunge in August.
Moderating loan momentum: We envisage a moderation of loan growth from a swift 13.8% y-o-y in September to 12% to 13% in view of (1) external uncertainties and (2) the slowing trend for loan applications, which points to a depleting loan pipeline.
Furthermore, we gathered that most banks have turned conservative in their lending practices as a precautionary measure against a rise in delinquencies.
We are projecting a gross impaired loan ratio of 2.6% to 2.8% for end-2011 vs 2.8% in September. We see limited risk of a spike in impaired loan ratios in the event of any economic slowdown given Malaysian banks’ track record of managing their NPLs. For instance, in 2009, the industry reduced its gross NPL ratio from 4.8% to 2.7% even though GDP contracted by 1.7%.
We remain “neutral” on the sector in the light of increased external uncertainties. A pullback in the equity market since mid-2011 with increased volatility does not bode well for investment banking deal flow. Loan growth is set to soften and the margin squeeze will persist though it should not be as severe as in the past one to two years.
On the flip side, we are still positive on (1) financing opportunities for projects under the Economic Transformation Programme (2) the sector’s undemanding CY12 P/E of 10.7 times and (3) attractive dividend yield of about 5%. — CIMB Equities Research, Nov 1
This article appeared in The Edge Financial Daily, November 2, 2011.
