Maintain neutral: As at November 2014, the banking system loans grew by 7.7% year-to-date (YTD), which translated into an annualised loan growth of 8.4%. This was slightly ahead of our 2014 target of 8.2%. On a month-on-month (m-o-m) basis, loans grew at 0.8% (vs. +0.9% m-o-m in October 2014), underpinned by both business loans and household loans at the same rate of +0.8% m-o-m. Economic sectors such as utilities, logistics, real estate, construction and households underpinned stronger loan growth against the system’s +9.3% year-on-year (y-o-y) as at November 2014. Overall, November 2014 loan indicators appeared more negative, with approval and disbursement declining by 5.8% and 9.4% m-o-m respectively while new applications were up 5.6% m-o-m, driven by the business segment. All in all, the 11-month 2014 (11M14) loan repayments (+14.2% y-o-y) remained ahead of total loan disbursements (+12.4% y-o-y), hence pressuring the system’s loan growth (financials, manufacturing and construction are key sectors with high repayments on a y-o-y basis).
We believe that higher funding cost and availability of offshore financing were the key factors which suppressed loan growth. Banks with bigger exposure to the corporate segment, Malayan Banking Bhd (Maybank) and CIMB Group Holdings Bhd could face the risk of weaker than expected loan growth.
In our view, despite the slowing momentum in the credit market, outperformers (with above industry loan growth) such as Public Bank Bhd (group annualised loan growth at 10% against industry at 8.4%) stands out given its minimal exposure to corporate lending (at 10.9% of portfolio) while simultaneously having a relatively established franchise in retail lending. Even Maybank’s Consumer Financial Services division continues to perform well — 9M14 loans grew at an annualised rate of 9.5%, and hence cushioned the impact of the slowdown in the corporate segment. In fact, the system household loan growth remained steady (with YTD growth of 9.4%, equivalent to an annualised growth of 10.3%) with no severe pullback despite Bank Negara Malaysia’s macroprudential measures vis-à-vis business loans, which has only grown by 5.5% YTD (annualised 6%). — AffinHwang Capital Research, Jan 2
This article first appeared in The Edge Financial Daily, on January 5, 2015.