This article first appeared in The Edge Financial Daily on May 7, 2018 - May 13, 2018

Banking sector
Maintain overweight: The sector’s loan growth decelerated to 4.4% year-on-year (y-o-y) in March 2018, from 4.5% y-o-y in February. This was contributed by a slower non-household loan growth, while growth in household loans remained steady. Growth in working capital loans shrank to 0.3% y-o-y (February 2018: 0.7% y-o-y). On a year-to-date basis, industry loan growth was an annualised 4.8%. It remained on track to meet our projection of a 5% loan growth in 2018 on the back of a gross domestic product growth of 5.5%.

March 2018 saw an improvement in the growth of industry loan applications to 0.02% y-o-y versus -5.8% y-o-y in February. Growth in non-household loan applications picked up pace to 11.4% y-o-y in March 2018, compared with -7.2% y-o-y in February. Meanwhile, growth in household loan applications slipped further to -8.1% y-o-y. For loan purposes, growth in loan applications for personal loans and working capital rose compared to the previous month.

With a stronger deposit growth, the industry loan-to-deposit ratio improved to 88.5%. The banking sector’s deposit growth strengthened to 5.2% y-o-y from 4.2% y-o-y in February 2018. Growth in individual deposits rose slightly to 3.3% y-o-y (February 2018: 3.2% y-o-y), while that of business enterprises climbed to 12.4% y-o-y versus 8.9% y-o-y in February 2018.

The sector’s weighted average lending rate (ALR) rose two basis points to 5.43%, while the base rate was unchanged at 3.89%. The base lending rate remained at 6.9%. The average deposit rate (the average rate for fixed deposits [FDs] of an up-to-one-year tenure) was steady at 3.21%. The interest spread (using the difference between the weighted ALR and three-month FD rate as the proxy) was up slightly to 2.27% due to a higher weighted ALR.

The industry’s impaired loans continued to rise for the third consecutive month. It increased by 1.8% month-on-month or RM441 million in March 2018, due to upticks in impairment of loans for purchases of residential and non-residential property, construction and working capital loans. This was due to the refining of banks’ methodologies for the implementation of Malaysian Financial Reporting Standards 9, which resulted in an increase in provisions. Notwithstanding that, the industry’s total gross impaired loans remained steady at 1.6%, while the net impaired loan ratio continued to inched up to 0.99% from 0.94% and 0.91% in February and January 2018 respectively.

Cumulative net funds raised in the market by the private sector were RM20.4 billion in the first three months of 2018, compared with RM23.9 billion in the corresponding period of 2017.

We maintain “overweight” with a “buy” call on RHB Bank Bhd (fair value [FV]: RM6.30 per share), Public Bank Bhd (FV: RM24.30), Alliance Bank Malaysia Bhd (FV: RM4.40) and BIMB Holdings Bhd (FV: RM4.80). — AmInvestment Bank, May 3