By Stephanie Jacob
Analysts have maintained their “neutral” calls on the banking sector after Bank Negara Malaysia’s November 2015 statistics indicated that loan growth moderated for the third consecutive month.
Loan growth for the month under review slowed to 8.4% year-on-year (y-o-y) from the 9.1% seen in October 2015, as both the business and household segments saw slower growth of 8.7% and 7.8% respectively, said Hong Leong Investment Bank.
Meanwhile, loan approvals were weaker in November 2015, with a higher negative growth rate of 11% y-o-y versus the 5.7% y-o-y seen in the preceding month, noted MIDF Research.
This was mainly due to the slower pace of approvals for both non-household and household loans. Non-household loan approvals grew at a slower pace of -4.8% y-o-y as approvals of construction and working capital loans fell. While household loan approvals continued to be weak with a higher negative growth of -15.9% y-o-y mainly due to a slowdown in mortgage loans approvals, said MIDF Research.
UOB Kay Hian noted that asset quality remained largely intact as non-performing loans (NPL) remained relatively benign. It said that absolute NPL inched up marginally by 2.1% y-o-y, while the sector’s gross NPL ratio rose slightly to 1.62% from 1.6% y-o-y.
The areas which saw the most significant asset quality stress were personal loans, credit cards and commercial property lending, where NPL grew by 13.8%, 10.3% and 36.7% respectively.
In terms of broad asset quality trends, UOB Kay Hian said: “Household NPL remained stable as residential property asset quality remained intact, business NPL inched up 3% largely due to commercial property NPL deterioration, while working capital NPL remained intact.”
MIDF Research said sector liquidity improved slightly in the month under review with the loan deposit ratio (LD ratio) declining to 91%. Growth in loan disbursements remained slow at -2.8% y-o-y, while loan repayments grew by 7% in November 2015, it added.
“With loan repayments outpacing disbursements, industry LD ratio declined slightly to 91% from 91.2% in the preceding month. Growth of deposits (excluding repurchase agreements) in the banking system continued to decelerate to +2.2% y-o-y as compared to +2.7% y-o-y in the preceding quarter.
“Nevertheless, industry current account and savings account (CASA) growth gained pace with a higher growth of +8.6% y-o-y from +4.6% y-o-y in the preceding month. CASA ratio remain stable at 25.6% in November 2015,” it said.
Meanwhile, the sector’s liquidity coverage ratio (LCR) rose slightly to 121% from 119% recorded in October 2015. This was contributed by rise in LCR for commercial and Islamic banks to 125% and 111.9% respectively, while the LCR for investment banks declined to 115%, said the research house.
MIDF Research has maintained its “neutral” call on the banking sector. It has also kept its loan growth forecast to be between 7% and 8% for 2015. Similarly it expects loan growth for 2016 to be in the same range.
Its top pick of the sector is Maybank Bhd with a target price of RM9.80 due to the group’s diversified earnings and attractive dividend yield.
While it has a “neutral” call on Hong Leong Financial Group Bhd, RHB Capital Bhd, CIMB Group Holdings Bhd, Public Bank Bhd, AmBank Group, Alliance Finance Group Bhd and BIMB Holdings Bhd. It has a “sell” on Affin Holdings Bhd due to its weaker than expected nett operating income, higher operational expenditure and provisions.
UOB Kay Hian, meanwhile, has maintained its “market weight” rating on the sector and it also has Maybank as its top pick for the sector. It said Maybank could be a key beneficiary of ValueCap’s imminent capital injection into the market given its undemanding valuations, above-industry return-on-equity (ROE) and dividend yield, and its heavy index weighting.
The research house is also positive on RHB Cap due to the group’s undemanding valuations and good earnings recovery.
Meanwhile, Hong Leong Investment Bank has maintained its “neutral” call on the sector with Maybank, RHB Cap and CIMB Group as its top picks.
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