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Banking sector
Maintain “neutral”. Banking system loan growth stable at 9% year-on-year (y-o-y) in October 2014, growing at the same rate as the preceding month. Business loan growth continued to gain traction for the second consecutive month, rising to 8.3% y-o-y, up 50 basis points (bps) from the previous month. Meanwhile, household loan growth further moderated, slipping RM20 billion from the previous month to 10.5% y-o-y in October 2014.

Growth in working capital loans continued to rise, growing at 9 % y-o-y while growth in construction loans slipped to 14.4% y-o-y, down 220 bps from the previous month.

Expansion of loans was mainly attributable to increase in loans to the manufacturing, construction, real estate, financing, insurance and business services, and wholesale, retail, and restaurants and hotels sectors.

Momentum for household loans continued to be slow. There is still a good traction on mortgage loans. Growth in loans for residential property purchases remained stable at 13.7% in October 2014 y-o-y while growth in loans for purchase of non-residential property moderated slightly to 15.1% y-o-y. Meanwhile, growth in loans for purchase of securities slipped to 15.1% y-o-y, a decline of 40 bps from September 2014.

Growth in loans for purchase of passenger cars improved to 3.7% y-o-y after four consecutive months of decline. Personal loans and credit card lending continued to grow modestly at 3.7% y-o-y and 2.7% y-o-y respectively.

Industry loan application growth further decelerated to -4.3% y-o-y vs 6.7% y-o-y in the preceding month. Compared with September 2014, the decline in growth in applications in October 2014 was broad-based. By business sectors, finance, insurance and business activities construction and manufacturing experienced slower growths in loan applications compared with the preceding month.

Growth in household’s loan applications slipped to -14.1% y-o-y from -0.5% y-o-y in the preceding month.

Loan demand weakened across all types of household loans. We believe this has been attributed by the rise in inflation with the adjustment in fuel prices as well as due to some banks taking a conservative stance on lending only to selected segments, hence avoiding lending to individuals falling under the vulnerable income group or borrowers that do not fall under the preferred risk grades for lending.

Maintain our “neutral” stance on the sector. Our stock picks are Hong Leong Bank Bhd (target price [TP]: RM16.30), Malayan Banking Bhd (TP: RM11.20) and RHB Capital Bhd (RM10.70). We have a trading “buy” call on CIMB Group Holdings Bhd (TP: RM7.27) due its share price weakness which has declined below its fundamental value. On the other stocks, we are neutral on Public Bank Bhd (TP: RM19.50), AHB Holdings Bhd (TP: 3.30), AMMB Holdings Bhd (TP: RM7.30), and Alliance Financial Group Bhd (TP: RM5) — MIDF Research

 

This article first appeared in The Edge Financial Daily, on December 3, 2014.

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