SECTOR REPORT

TA Securities A Member of the TA Group

Monday, July 03, 2017
FBM KLCI: 1,763.67
Sector: Finance
MENARA TA ONE, 22 JALAN P. RAMLEE, 50250 KUALA LUMPUR, MALAYSIA TEL: +603-20721277 / FAX: +603-20325048

Banking Sector
Loan Growth Takes a Breather
THIS REPORT IS STRICTLY FOR INTERNAL CIRCULATION ONLY*

Team Coverage Tel: +603-2167 9610 liwong@ta.com.my TA Research Team Coverage

Loans and Advances Softened to 5.5% YoY

Loan growth eased in May, rising 5.5% YoY from an increase of 6.1% April. YTD, loan
growth is up 1.2%, vs. an increase of 0.9% a year ago. From a month ago, total loans
outstanding climbed 0.2%. By segment, consumer loans accelerated by 5.8% YoY (+0.4%
MoM). Business loans eased, contracting 0.1% MoM. Yearly, total business loans
expanded by 5.2% in May vs. an expansion of 6.4% YoY in April. We believe that while
loans to the SME segment remained buoyant, softer business loans were underpinned by
decreases in the demand for working capital (+5.6% YoY, -0.4% MoM) and by sector,
mining and quarrying (-11.0% YoY, -1.0% MoM), real estate (+7.3% YoY, -1.0% MoM)
and finance, insurance and business activities (+5.2% YoY, -1.3% MoM).

Consumer loans continued to broaden on the back of drawdowns for residential

mortgages (+8.6% YoY, +0.7% MoM). Advances for credit cards widened by 2.6% YoY
and 0.6% MoM. Meanwhile, loans taken for the purchase of securities rose for the third
straight month (+4.4% YoY, -0.2% MoM). Loans for the purchase of passenger cars
resumed its downward momentum, contracting by 0.3% YoY and 0.1% MoM.

Loan Applications Accelerated but Approvals Slipped Marginally

Loan applications strengthened again May, and at a healthier pace of 4.5% YoY (-16.8%
MoM). In the consumer segment, total loans applied surged 22.9% YoY and 15.8% MoM.
Compared to a year ago, application for credit cards was higher by 8.8% YoY (+5.6%
MoM). This is followed by YoY improvements registered by loan applications for the
purchase of residential mortgages (+18.7% YoY, +11.9% MoM) and purchase of securities
(+72.5% YoY, +51.2% MoM). Meanwhile, application for loans to buy passenger cars
rebounded in May, rising 16.9% YoY (+15.3% MoM). In the business segment, application
for credit slipped for the third straight month, decreasing by 13.9% YoY (+18.1% MoM).

Meanwhile, total loans approved slipped 2.3% YoY but rose 15% MoM. Approvals were
mostly supported by the increase in the consumer (+17.6% YoY, +15.2% MoM) segment.
Muting stronger consumer approvals were another softer month for business loans (-
21.3% YoY, +14.8% MoM). Overall approval rate slipped MoM to 41.4% from 42.0% in
April - comprising business and consumer loan approval rates of 41.4% and 41.3%
respectively. By major sub-segments, approval for the purchase of residential properties
stayed pat at 42.1% while approval for non-residential properties widened by some
1.6%-points MoM to 32.2%.

Repayment of Loans Increased YoY

Repayments climbed again in May, up 6.2% YoY. The banking systems net impaired loans
ratio stood at 1.2%. Loan loss provisions improved slightly to 83.0% from 82.3% in April.
During the month, impairment ratios for non-residential properties, residential
properties, personal loans and credit cards stood unchanged at 1.1%, 1.1%, 2.2% and
1.3%. The impairment ratio for the purchase of passenger cars also stayed pat at 0.9% in
May.

By segment, the gross impaired loans ratio for the construction and manufacturing
sectors were also unchanged at 7.8% and 4.2% while wholesale, retail and trade as well
as loans taken for working capital eased by 10 bps each to 2.1% and 2.5%.

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 TA Securities
A Member of the TA Group 3-Jul-17

Elsewhere, the banking systems capital buffers remained ample with CET1 and Total
Capital Ratio of 13.0% and 17.0%.

Deposits Strengthened YoY, Higher CASA Ratio

Total deposits (excl. Repo) advanced at a healthier pace of 3.7% YoY (+0.7% MoM). CASA
balances in commercial banks maintained its upward momentum for the 8th month,
increasing 8.8% YoY (+0.5% MoM). The CASA ratio climbed to 26.9% from 25.7% a year
ago. The loan to deposit (LD) ratio stood at 89.6% (May 2016: 90.1%) while the liquidity
coverage ratio (LCR), which is reported 1-month in arrear, jumped to 140% from 127%
in April 2016.

Stable Average Lending Rates

Average 1 and 12 months fixed deposit rates stood unchanged at 2.87% and 3.08%. The
average lending rate also stayed pat at 5.19% MoM as stability appears to be coming back
to loan yields.

Maintain Overweight
We reiterate our overweight stance on the sector, premised on a more sanguine macro
outlook and the sectors attractive valuations. Operationally, we note that consumer
spending remains resilient and supportive of loan growth while optimism among
businesses have improved. Elsewhere, the banking systems asset quality remains intact,
backed by unchanged gross impaired loans ratio of 1.2% and LCR in excess of 100%. We
believe the overall debt profile for the country remains healthy. Other drivers for
earnings growth include potential hikes in the overnight policy rate (OPR), leading to
margin expansion. We expect the increase in rate to augur well for the banking sector as
margins are compressed by competitive pressures. We also maintain our stock
recommendations for now, pending the release of our 2H 2017 strategy report. BUY
maintained on Alliance Financial Group (AFG) and Affin. Reiterate HOLD on Maybank,
CIMB, Public Bank and AMMB. SELL RHB Bank and Hong Leong Bank.

Table 1: Peers comparison

Net Profit Profit growth PER

Price TP Mkt Cap FY17 FY18 FY17 FY18 FY17 FY18
(RM) (RM) RM mil (sen) (sen) (%) (%) (x) (x)
Ma yba nk 9.63 9.90 HOLD 98,721.9 7,517.4 8,440.7 11.5 12.3 13.1 11.7
CIMB 6.58 7.00 HOLD 59,562.8 4,486.3 4,959.9 25.9 10.6 13.3 12.0
Publ i c Ba nk 20.32 22.10 HOLD 78,465.7 5,272.9 5,421.8 1.3 2.8 14.9 14.5
Hong Leong 15.66 15.90 SELL 32,032.5 2,147.7 2,342.0 12.8 9.0 14.9 13.7
AMMB 4.88 5.30 HOLD 14,709.3 1,324.6 1,454.6 1.7 9.8 11.1 10.1
RHB Bank 5.06 5.20 SELL 20,290.6 2,029.9 2,163.7 20.7 6.6 10.0 9.4
Al l ia nce 3.85 4.60 BUY 5,870.9 512.1 463.4 (1.9) (9.5) 11.5 12.7
Affin 2.68 3.50 BUY 5,207.0 570.9 644.1 1.2 12.8 9.1 8.1
Simple average 39,357.6 2,982.7 3,236.3 11.1 8.5 12.2 11.5

P/BV ROE ROA DPS Div yield

FY17 FY18 FY17 FY18 FY17 FY18 FY17 FY18 FY17 FY18
(x) (x) (%) (%) (%) (%) (sen) (sen) (%) (%)
Ma yba nk 1.3 1.2 10.7 11.3 1.0 1.1 50.0 50.0 5.2% 5.2%
CIMB 1.2 1.2 9.7 10.2 0.9 0.9 20.2 22.4 3.1% 3.4%
Publ i c Ba nk 2.1 1.9 14.8 13.9 1.4 1.3 56.0 58.0 2.8% 2.9%
Hong Leong 1.4 1.4 10.1 10.7 1.1 1.1 41.0 41.0 2.6% 2.6%
AMMB 0.9 0.9 8.5 8.8 1.0 1.1 17.6 18.0 3.6% 3.7%
RHB Ca p 0.9 0.8 9.0 9.0 0.8 0.9 12.0 12.0 2.4% 2.4%
Al li a nce 1.1 1.1 10.8 9.3 0.9 0.8 16.0 16.0 4.2% 4.2%
Affi n 0.7 0.7 7.3 8.8 0.8 0.9 8.0 8.0 3.0% 3.0%
Simple average 1.2 1.2 10.1 10.2 1.0 1.0 27.6 28.2 3.3% 3.4%
Source: TA Research, Bursa M alaysia, B loomberg

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 TA Securities
A Member of the TA Group 3-Jul-17

( T HI S P AGE I S I NT E N T I ON AL L Y L E FT B L ANK)

Sector Recommendation Guideline

OVERWEIGHT: The industry, as per our coverage universe, is expected to outperform the FBMKLCI over the next 12 months.
NEUTRAL: The industry, as per our coverage universe, is expected to perform in line with the FBMKLCI over the next 12 months.
UNDERWEIGHT: The industry, as per our coverage universe, is expected to underperform the FBMKLCI over the next 12 months.
Disclaimer
The information in this report has been obtained from sources believed to be reliable. Its accuracy or completeness is not guaranteed and
opinions are subject to change without notice. This report is for information only and not to be construed as a solicitation for contracts.
We accept no liability for any direct or indirect loss arising from the use of this document. We, our associates, directors, employees may
have an interest in the securities and/or companies mentioned herein.
for TA SECURITIES HOLDINGS BERHAD(14948-M)
(A Participating Organisation of Bursa Malaysia Securities Berhad)
Kaladher Govindan Head of Research

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