Banks - Oct 14 tracker – Business loan growth energised
Recommendation: Under Weight
Loan growth stayed at 9% yoy in Sep-Oct 14. Most of the business loan segments posted stronger growth rates but as expected, the consumer loan momentum continued to moderate.
Looking at the 10M14 trends, a slowdown in loan growth in 2014 is unavoidable. This, together with the continuous pressure on margins, would constrict banks’ topline growth. Another earnings risk is the upturn in credit costs. All these reflect a gloomy earnings outlook that underpins our Underweight rating on the sector. Maybank remains our top pick.
Stable loan growth
Loan growth stayed at 9% yoy in Sep-Oct 14, supported by a recovery in the momentum of business loans, from 6.7% yoy in Sep 14 to 7.1% yoy in Oct 14. Meanwhile, the pace of consumer loans eased somewhat, from 10.7% yoy to 10.5% yoy in the same period.
Higher loan approvals
The industry’s loan applications dropped by 4.3% yoy in Oct 14, dragged down by wider contraction in property loan segments. However, loan approvals continued to advance for the third consecutive month in Oct 14 (by 13.1% yoy), driven by the jump in the working capital loan segment. This would support the loan growth at above the 9% level at least towards the year-end.
A U-turn in ALR
After two consecutive months of improvements, banks’ average lending rate (ALR) declined by 5bp mom to 4.67% in Oct 14. This substantiated our view that the rate hike would only temporarily curb the sliding trend in lending yield. The rate hike pushed up the ALR by 13bp yoy but this trailed the 16bp yoy rise in average fixed deposit rates, suggesting a narrower net interest margin even after the rate hike.
Stable asset quality
The industry’s impaired loan ratios were largely stable at 1.7-1.8% gross and 1.3% net in Jan-Oct 14. Loan loss coverage improved from 101.7% in Sep 14 to 103.8% in Oct 14.
Source: CIMB Daybreak - 01 December 2014
Recommendation: Under Weight
Loan growth stayed at 9% yoy in Sep-Oct 14. Most of the business loan segments posted stronger growth rates but as expected, the consumer loan momentum continued to moderate.
Looking at the 10M14 trends, a slowdown in loan growth in 2014 is unavoidable. This, together with the continuous pressure on margins, would constrict banks’ topline growth. Another earnings risk is the upturn in credit costs. All these reflect a gloomy earnings outlook that underpins our Underweight rating on the sector. Maybank remains our top pick.
Stable loan growth
Loan growth stayed at 9% yoy in Sep-Oct 14, supported by a recovery in the momentum of business loans, from 6.7% yoy in Sep 14 to 7.1% yoy in Oct 14. Meanwhile, the pace of consumer loans eased somewhat, from 10.7% yoy to 10.5% yoy in the same period.
Higher loan approvals
The industry’s loan applications dropped by 4.3% yoy in Oct 14, dragged down by wider contraction in property loan segments. However, loan approvals continued to advance for the third consecutive month in Oct 14 (by 13.1% yoy), driven by the jump in the working capital loan segment. This would support the loan growth at above the 9% level at least towards the year-end.
A U-turn in ALR
After two consecutive months of improvements, banks’ average lending rate (ALR) declined by 5bp mom to 4.67% in Oct 14. This substantiated our view that the rate hike would only temporarily curb the sliding trend in lending yield. The rate hike pushed up the ALR by 13bp yoy but this trailed the 16bp yoy rise in average fixed deposit rates, suggesting a narrower net interest margin even after the rate hike.
Stable asset quality
The industry’s impaired loan ratios were largely stable at 1.7-1.8% gross and 1.3% net in Jan-Oct 14. Loan loss coverage improved from 101.7% in Sep 14 to 103.8% in Oct 14.
Source: CIMB Daybreak - 01 December 2014
