Banks - Feb 15 tracker – a taxing time for loan growth
Recommendation: Under Weight
Ahead of the implementation of GST, which will have a negative impact on business/consumer sentiment, on 1 Apr 15, the industry’s loan growth continued to be soft at 8.8% yoy in Feb 15 – this is slightly higher than Jan 15's 8.6% yoy growth. Feb 15 loan indicators were also lethargic, indicating continuous downward pressures on loan growth in the coming months. The subdued prospects for loan expansion prompted us to remain Underweight on banks. Other de-rating catalysts include (1) margin contraction, and (2) higher credit costs. RHB Capital remains our top pick.
What Happened
Based on Bank Negara Malaysia’s (BNM) latest statistics released today, the industry’s loan growth inched up from 8.6% yoy in Jan 15 to 8.8% yoy in Feb 15. This was mainly due to the slight improvement from 7.3% yoy in Jan 15 to 7.6% yoy in Feb 15 for business loan growth, while the pace for consumer loan expansion stayed at 9.7% yoy in Jan-Feb 15. The growth in residential mortgages, which are the key driver for the industry's loan momentum, has been on a declining trend from 13.9% yoy in Aug 14 to 13% yoy in Feb 15, underscoring our concerns about further weakness in the coming months.
The momentum of leading loan indicators was weak in Feb 15. Loan applications fell by 17.1% yoy in Feb 15 (vs. +10% yoy in Jan 15), dragged down by declines in the auto loans, residential mortgages and working capital loans segments. Loan approvals inched down by 0.8% yoy in Feb 15 (vs. +9.3% yoy in Jan 15), as the approvals of working capital loans grew at a slower pace of 30.7% yoy compared to 63.1% yoy in Jan 15, against the backdrop of an 8.7% yoy drop in the approvals of residential mortgages.
The industry’s gross impaired loan ratio stayed at 1.7% in Jan-Feb 15, but loan loss coverage retreated from 99.9% in Jan 15 to 97.9% in Feb 15. The average lending rate (ALR) rose marginally by 3bp mom to 4.67% in Feb 15 but expanded by 23bp yoy, thanks to the rate hike in Jul 14.
What We Think
We think that loan growth will continue to be suppressed in the coming months due to (1) the implementation of GST in Apr 15, and (2) weak leading loan indicators. But we are hopeful that loan momentum will recover in the later part of 2H15 when consumers/businesses start to adapt to the new GST regime. We are projecting loan growth of 8.5-9.5% for 2015, with similar expansion rates for both consumer and business loans. Banks' asset quality is expected to be stable with a forecasted gross impaired loan ratio of circa 1.8% in 2015.
What You Should Do
We advise investors to reduce their positions in banks, as we see downside risks for loan growth in 2015. Other concerns include continuous margin compression and an increase in credit costs.
Source: CIMB Daybreak - 01 April 2015
Recommendation: Under Weight
Ahead of the implementation of GST, which will have a negative impact on business/consumer sentiment, on 1 Apr 15, the industry’s loan growth continued to be soft at 8.8% yoy in Feb 15 – this is slightly higher than Jan 15's 8.6% yoy growth. Feb 15 loan indicators were also lethargic, indicating continuous downward pressures on loan growth in the coming months. The subdued prospects for loan expansion prompted us to remain Underweight on banks. Other de-rating catalysts include (1) margin contraction, and (2) higher credit costs. RHB Capital remains our top pick.
What Happened
Based on Bank Negara Malaysia’s (BNM) latest statistics released today, the industry’s loan growth inched up from 8.6% yoy in Jan 15 to 8.8% yoy in Feb 15. This was mainly due to the slight improvement from 7.3% yoy in Jan 15 to 7.6% yoy in Feb 15 for business loan growth, while the pace for consumer loan expansion stayed at 9.7% yoy in Jan-Feb 15. The growth in residential mortgages, which are the key driver for the industry's loan momentum, has been on a declining trend from 13.9% yoy in Aug 14 to 13% yoy in Feb 15, underscoring our concerns about further weakness in the coming months.
The momentum of leading loan indicators was weak in Feb 15. Loan applications fell by 17.1% yoy in Feb 15 (vs. +10% yoy in Jan 15), dragged down by declines in the auto loans, residential mortgages and working capital loans segments. Loan approvals inched down by 0.8% yoy in Feb 15 (vs. +9.3% yoy in Jan 15), as the approvals of working capital loans grew at a slower pace of 30.7% yoy compared to 63.1% yoy in Jan 15, against the backdrop of an 8.7% yoy drop in the approvals of residential mortgages.
The industry’s gross impaired loan ratio stayed at 1.7% in Jan-Feb 15, but loan loss coverage retreated from 99.9% in Jan 15 to 97.9% in Feb 15. The average lending rate (ALR) rose marginally by 3bp mom to 4.67% in Feb 15 but expanded by 23bp yoy, thanks to the rate hike in Jul 14.
What We Think
We think that loan growth will continue to be suppressed in the coming months due to (1) the implementation of GST in Apr 15, and (2) weak leading loan indicators. But we are hopeful that loan momentum will recover in the later part of 2H15 when consumers/businesses start to adapt to the new GST regime. We are projecting loan growth of 8.5-9.5% for 2015, with similar expansion rates for both consumer and business loans. Banks' asset quality is expected to be stable with a forecasted gross impaired loan ratio of circa 1.8% in 2015.
What You Should Do
We advise investors to reduce their positions in banks, as we see downside risks for loan growth in 2015. Other concerns include continuous margin compression and an increase in credit costs.
Source: CIMB Daybreak - 01 April 2015
