Banking - Coming down the line from BNM

kiasutrader

Publish date: Fri, 03 Aug 2012, 09:35 AM

BNM's end-June12 statistics indicate that the banking industry continues to perform. Loan growth rose 12.6% YoY, an increase of 13bps from May 2012. The banking system remains flushed with liquidity as loan-to-deposit ratio of June12 increased by 3 bps from last month's 78.5%. With an unutilised deposit amount of RM292.8b, the system is able to support ETP-related infrastructure projects and capital market activities such as large IPOs (upcoming is Astro), and increasing share market trading volume. Despite the lending indicators showing a slowdown compared to last month, we still believe that loan growth will be able to outperform our industry forecast for 2012E.

Continued growing. Growth in household loans and business loans were the strongest contributors to the overall growth. Total loans expanded 12.6% YoY to RM1,067b and 4.3% QoQ in June 2012. On an annualized basis, the total loans grew 12.7%, which is in line with our 11.0%-13.0% growth forecast for 2012E.

Loans to households grew at a steady rate of 11.9% YoY, parallel to the stabilising mortgage loan growth at +18.1% YoY (May 2012: +19.3% YoY) and improving hire purchase loans growth of +6.9% YoY (May 2012: +6.6% YoY). Business loans growth continued their momentum by achieving an increase of 13.6% YoY from +13.4% YoY in May. This was driven by the recent increase of ETP project deals being awarded. On the other hand, the credit card loan growth continues to decline to 4.6% YoY from 4.9% in April12. Lending indicators contracted in June12, nonetheless. Despite a strong comeback in May12, lending indicators normalised in June on a YoY basis. June loan applications normalised to 10.5% from May's 13.6%. The fall in loan applications was due to the decrease in loan demand from the household sector and financial intermediation, partially due to the effect from the introduction of the responsible lending guidelines by BNM earlier. With most banks already configuring themselves to comply with the rules, we expect the growth in household loans to continue to normalise in the near future.

Deposits growth looking good at 12.6%. The 12.6% YoY growth in total deposit was due to the 10.1% increased in fixed deposits and 11.2% increase in demand deposits. With the total deposits hovering around the 12%-14% level, the LDR was stable at 78.5%. Gross impaired loans continued to be at the all-time low. The gross impaired loans ratio decreased to 2.2% as compared to May12's 2.3%, which is a decrease of RM1.82b from May12. We see this as a positive trend as it showed that the banking system is able to finance all the loans and projects, especially with the current ETP projects rollouts.

Can the industry outperform? All in all, based on the BNM June12 Monthly Statistics Report, there are strong indications that the banking system will be able to support the lending and capital market activities with local funding. The loan-to-deposit ratio has been climbing since November 2011 to 78.5% with the unutilised deposits at RM292.8b. This excess liquidity will be able to support ETP-related infrastructure projects like the MRT project. With the first phase of the MRT project moving into active phase as well as other new ETP deals being awarded (George Ken-Lion Pacific JV's LRT RM960.0m extension, MRCB-Nusa's RM1.0b link, etc.), we are very optimistic that the banking system will be able to fully finance the overall ETP projects without putting any stress on the local banking system liquidity. Having already achieved a 12.6% loan growth this month, we believe that the banking industry will be able to outperform our industry loan growth forecast of 11%-13% despite a slightly weaker set of lending indicators.

We are maintaining our OVERWEIGHT call on the sector. We have OUTPERFORM calls on MAYBANK (TP: RM10.40), PBBANK (TP: RM15.60), RHBCAP (TP: RM9.60), CIMB (TP: RM8.50), AMMB (TP: RM6.70), AFFIN (TP: RM4.30) and BIMB (TP: RM3.60). AFG (TP: RM4.00) and HLBANK (TP: RM10.90) are both rated as MARKET PERFORM.

Source: Kenanga