Banking sector
Maintain overweight: Growth momentum of all three lending indicators recovered considerably in November with month-on-month (m-o-m) expansion in loan applications,
loan approvals and disbursements by 2.2%, 10.1% and 9.1% to RM64.8 billion (October: RM63.4 billion), RM35.9 billion (October: RM32.6 billion) and RM71 billion (October:
RM65 billion) respectively. Outstanding loans inched up by 1.1% m-o-m to RM988.3 billion, and year-to-date (YTD) annualised growth rose to 13% (October: 12.8%).
Property loans remained the key growth driver, accounting for 43.7% of the YTD credit expansion, followed by working capital loans at 18.4%. Although we believe that
property loans, which serve as the major loan growth driver last year, has peaked in 2011, we expect the increased business loans stemming from the roll out of Entry Point
Projects (EPP) under the government’s Economic Transformation Plan and the recovery in hire purchase loans to pick up the slack caused by the anticipated slowdown in property loans.
As such, we are still forecasting a double-digit domestic loan growth of 11% in 2012.
Both loan-deposit ratio (LDR) and financing-deposit ratio reduced marginally at 81.7% (October: 82.5%) and 87.7% in November (October: 88.5%) respectively.
Deposits were flattish, up 0.2% m-o-m (October: -0.4%). Annualised YTD growth improved from 10.4% in October to 11.5% in November.
Average base lending rate of the commercial banks remains constant m-o-m at 6.54%.
Average lending rate (ALR)-3 month fixed deposit (FD) spread improved to 2.07% (October: 2.03%). The improvement in ALR-3 month FD spread, which serves as a proxy for
the sector net interest margin (NIM), has reaffirmed our expectation that NIMs have reached its bottom last year and should stabilise or even improve in 2012.
Asset quality remains healthy as impaired loan ratio stayed at 1.9% while loan loss coverage maintained flattish m-o-m at 96.3%. Although impaired loans could trend higher should the economy deteriorate sharply, at present we do not foresee an alarming situation that justifies a surge in impaired loans for 2012.
The banking system remained well-capitalised, with the risk-weighted capital ratio (RWCR) and core capital ratio (CCR) at 14.8% and 12.7% respectively. This implies the domestic banking system is resilient to withstand unanticipated shocks to the financial system, if any.
The latest banking statistics have reaffirmed our conviction that the underlying fundamentals of the domestic banking sector remain solid, and we expect the near-term earnings prospect of the major domestic banks to stay robust going forward, despite the ongoing external uncertainties.
Maintain our “overweight” recommendation on the sector, where Hong Leong Bank Bhd serves as our top pick for the sector premised upon
(1) multi-year re-rating story from its transformation to be a banking giant;
(2) high synergistic benefits derived from the enlarged entity; and
(3) attractive valuation.
Key downside risks to our recommendation include
(1) unexpected termination in deal flows due to the volatility of the capital market; and (2) lower than expected loan growth;
(3) NIM compression due to competition and/or overnight policy rate cut; and
(4) deterioration in asset quality. — Alliance Research, Jan 3
Maintain overweight: Growth momentum of all three lending indicators recovered considerably in November with month-on-month (m-o-m) expansion in loan applications,
loan approvals and disbursements by 2.2%, 10.1% and 9.1% to RM64.8 billion (October: RM63.4 billion), RM35.9 billion (October: RM32.6 billion) and RM71 billion (October:
RM65 billion) respectively. Outstanding loans inched up by 1.1% m-o-m to RM988.3 billion, and year-to-date (YTD) annualised growth rose to 13% (October: 12.8%).
Property loans remained the key growth driver, accounting for 43.7% of the YTD credit expansion, followed by working capital loans at 18.4%. Although we believe that
property loans, which serve as the major loan growth driver last year, has peaked in 2011, we expect the increased business loans stemming from the roll out of Entry Point
Projects (EPP) under the government’s Economic Transformation Plan and the recovery in hire purchase loans to pick up the slack caused by the anticipated slowdown in property loans.
As such, we are still forecasting a double-digit domestic loan growth of 11% in 2012.
Both loan-deposit ratio (LDR) and financing-deposit ratio reduced marginally at 81.7% (October: 82.5%) and 87.7% in November (October: 88.5%) respectively.
Deposits were flattish, up 0.2% m-o-m (October: -0.4%). Annualised YTD growth improved from 10.4% in October to 11.5% in November.
Average base lending rate of the commercial banks remains constant m-o-m at 6.54%.
Average lending rate (ALR)-3 month fixed deposit (FD) spread improved to 2.07% (October: 2.03%). The improvement in ALR-3 month FD spread, which serves as a proxy for
the sector net interest margin (NIM), has reaffirmed our expectation that NIMs have reached its bottom last year and should stabilise or even improve in 2012.
Asset quality remains healthy as impaired loan ratio stayed at 1.9% while loan loss coverage maintained flattish m-o-m at 96.3%. Although impaired loans could trend higher should the economy deteriorate sharply, at present we do not foresee an alarming situation that justifies a surge in impaired loans for 2012.
The banking system remained well-capitalised, with the risk-weighted capital ratio (RWCR) and core capital ratio (CCR) at 14.8% and 12.7% respectively. This implies the domestic banking system is resilient to withstand unanticipated shocks to the financial system, if any.
The latest banking statistics have reaffirmed our conviction that the underlying fundamentals of the domestic banking sector remain solid, and we expect the near-term earnings prospect of the major domestic banks to stay robust going forward, despite the ongoing external uncertainties.
Maintain our “overweight” recommendation on the sector, where Hong Leong Bank Bhd serves as our top pick for the sector premised upon
(1) multi-year re-rating story from its transformation to be a banking giant;
(2) high synergistic benefits derived from the enlarged entity; and
(3) attractive valuation.
Key downside risks to our recommendation include
(1) unexpected termination in deal flows due to the volatility of the capital market; and (2) lower than expected loan growth;
(3) NIM compression due to competition and/or overnight policy rate cut; and
(4) deterioration in asset quality. — Alliance Research, Jan 3
