Banks - Dec 14 tracker – worst loan growth since 2009 recession
Recommendation: Under Weight
The loan growth of 8.7% in 2014 announced by BNM (vs. our forecast of 9-10%) was the weakest since the 2009 recession. It was negative that both consumer and business loan segments posted weaker momentum in 2014. However, asset quality remained stable despite the rise in inflation. We continue to rate banks as Underweight given the potential de-rating catalysts from (1) weak loan growth, (2) margin contractions, and (3) higher credit costs. RHB Capital remains our top pick.
What Happened
Based on Bank Negara Malaysia’s (BNM) statistics, the industry’s loan growth unexpectedly slid from 9.3% yoy in Nov 14 to 8.7% yoy in Dec 14. The 8.7% loan growth in 2014 was not only below our projected 9-10% and the pace of 10.6% in 2013 but also the slowest since the recession in 2009. Both major loan segments recorded weaker expansion in 2014 – at 9.7% for consumer loans (vs. 12% in 2013) and 7.5% for business loans (8.9%). The momentum in residential mortgages eased slightly from 13.4% in 2013 to 13.1% in 2014. Although loan applications fell mom in Dec 14 due to the year-end slowdown, they rose by a strong 15.1% yoy from a lower base a year ago. The driver was the 64.2% yoy jump in applications for working capital loans, but the applications for auto and residential mortgages declined by 2% yoy. Conversely, the growth in loan approvals eased from 10.8% yoy in Nov 14 to 2.1% yoy in Dec 14 as approvals of working capital loans only increased by 6.5% yoy in Dec 14 (vs. +30.4% yoy in Nov 14) while the approvals of residential mortgages still contracted by 10.7% yoy. The industry’s impaired loan ratios stayed at 1.7% gross and 1.3% net in Oct-Dec 14 but loan loss coverage improved from 103.3% in Nov 14 to 106.3% in Dec 14. The average lending rate (ALR) inched up by 2bp mom to 4.67% in Dec 14 and it expanded by 11bp yoy, lifted by the rate hike in Jul 14.
What We Think
We are projecting 9-10% loan growth in 2015, based on an expected rise of 10-11% in consumer loans and 8-9% in business loans. We are pinning our hopes on the improvement in business/consumer sentiment in 2H15 to support the loan growth. We expect that by 2H15 consumers/businesses would have started to adjust to the implementation of the GST, and that inflation would remain stable amidst low oil prices. We also gathered that some banks are offering GST financing to companies, which could have a small positive impact on loan growth. We will continue to monitor the trends in loan momentum and would revise our forecasts should the loan numbers remain lacklustre in the coming months. A 1% cut in loan growth projection would reduce banks’ net profit by an average of 0.7%.
What You Should Do
We advise investors to reduce their exposure to banks given the gloomy earnings outlook in 2015. We have Reduce calls on Public Bank, Hong Leong Bank and Affin.
Source: CIMB Daybreak - 04 February 2015
Recommendation: Under Weight
The loan growth of 8.7% in 2014 announced by BNM (vs. our forecast of 9-10%) was the weakest since the 2009 recession. It was negative that both consumer and business loan segments posted weaker momentum in 2014. However, asset quality remained stable despite the rise in inflation. We continue to rate banks as Underweight given the potential de-rating catalysts from (1) weak loan growth, (2) margin contractions, and (3) higher credit costs. RHB Capital remains our top pick.
What Happened
Based on Bank Negara Malaysia’s (BNM) statistics, the industry’s loan growth unexpectedly slid from 9.3% yoy in Nov 14 to 8.7% yoy in Dec 14. The 8.7% loan growth in 2014 was not only below our projected 9-10% and the pace of 10.6% in 2013 but also the slowest since the recession in 2009. Both major loan segments recorded weaker expansion in 2014 – at 9.7% for consumer loans (vs. 12% in 2013) and 7.5% for business loans (8.9%). The momentum in residential mortgages eased slightly from 13.4% in 2013 to 13.1% in 2014. Although loan applications fell mom in Dec 14 due to the year-end slowdown, they rose by a strong 15.1% yoy from a lower base a year ago. The driver was the 64.2% yoy jump in applications for working capital loans, but the applications for auto and residential mortgages declined by 2% yoy. Conversely, the growth in loan approvals eased from 10.8% yoy in Nov 14 to 2.1% yoy in Dec 14 as approvals of working capital loans only increased by 6.5% yoy in Dec 14 (vs. +30.4% yoy in Nov 14) while the approvals of residential mortgages still contracted by 10.7% yoy. The industry’s impaired loan ratios stayed at 1.7% gross and 1.3% net in Oct-Dec 14 but loan loss coverage improved from 103.3% in Nov 14 to 106.3% in Dec 14. The average lending rate (ALR) inched up by 2bp mom to 4.67% in Dec 14 and it expanded by 11bp yoy, lifted by the rate hike in Jul 14.
What We Think
We are projecting 9-10% loan growth in 2015, based on an expected rise of 10-11% in consumer loans and 8-9% in business loans. We are pinning our hopes on the improvement in business/consumer sentiment in 2H15 to support the loan growth. We expect that by 2H15 consumers/businesses would have started to adjust to the implementation of the GST, and that inflation would remain stable amidst low oil prices. We also gathered that some banks are offering GST financing to companies, which could have a small positive impact on loan growth. We will continue to monitor the trends in loan momentum and would revise our forecasts should the loan numbers remain lacklustre in the coming months. A 1% cut in loan growth projection would reduce banks’ net profit by an average of 0.7%.
What You Should Do
We advise investors to reduce their exposure to banks given the gloomy earnings outlook in 2015. We have Reduce calls on Public Bank, Hong Leong Bank and Affin.
Source: CIMB Daybreak - 04 February 2015
