Investment Highlights

• Industry loan growth rose to 4.1% YoY in June 2020 attributed to stronger household loan growth. Growth in household loans gained traction to 3.5% YoY from higher levels of mortgages and loans for purchase of securities through stronger disbursements. Meanwhile, non-household loan growth was unchanged at 4.9% YoY. YTD loans growth improved to 3.2% annualised. With the easing of MCO restrictions starting on 4 May 2020, loan disbursements have improved from the low levels in April and May 2020.

• Loan applications and approvals improved in June 2020. In June 2020, industry loan applications rebounded and registered a positive growth of 8.0% YoY vs. -39.0% YoY in May 2020. The level of household applications surged while that for nonhousehold loan applications continued to slid. June 2020 saw higher level of applications for purchase of passenger cars, residential property loans, credit cards and personal loans. Growth in industry loan approvals improved with a lower contraction of 12.7% YoY vs. -54.4% YoY in May 2020, contributed by higher levels of household and non-household loan approvals.

• Further decline in weighted average lending rate while the base rate was steady. June 2020 saw the sector's weighted average lending rate slipping by 8bps to 4.25% while the weighted base rate was stable at 2.68%. The BLR fell 3bps MoM to 5.75%. Interest spread (difference between weighted average lending rate and average FD rate) stood at 2.31%. With the dovish statement by BNM in the recent MPC statement, we are expecting another OPR cut of 25bps in 2H2020 to reduce the rate further to 1.50%.

• Stronger deposit growth while industry CASA growth leapt. Industry deposit growth rose to 4.4% YoY while CASA continued to expand strongly at 16.8% YoY leading to a higher CASA ratio of 28.9%. The LD ratio for the sector improved moderately to 88.0%. Sector LCR increased to 149.0% from 140.0% in May 2020, contributed by the shift in wholesale funding to deposits.

• Impaired loans and provisions declined MoM. The industry’s outstanding impaired loans in June 2020 declined by 5.3% MoM or RM1.5bil. By loan purpose, the decrease was largely driven by lower impairments of loans for construction, working capital and most segments of household loans MoM. The industry’s total GIL improved slightly to 1.5% while NIL ratio held up at 0.9%. The sector’s loan loss cover improved to 92.9%. Excess capital buffer remained healthy at RM120bil to withstand any shocks/losses.

• Stable capital ratios. The sector's CET1, Tier 1 and total capital ratios were stable at 14.0%, 14.5% and 17.7% respectively.

• Retain our NEUTRAL stance on the sector on concerns of upticks in impairments of loans after the blanket automatic moratorium ends on Sept 2020. Our top picks for the sector remain Maybank (FV: RM8.40/share) and RHB Bank (FV: RM6.00/share).

Source: AmInvest Research - 3 Aug 2020