Monday, 2 April 2012

Banking Sector - Reasonable recovery for a short February 2012 OVERWEIGHT


- Leading indicators rebound but largely due to a low base effect. Loans applications growth rebounded by a seemingly strong 47.3% in February 2012, compared with the first decline in five months in January 2012 of -2.7%. Loans approved growth recovered as well to 17.7%, from -2.9% in January 2012. This was due mainly to a low base effect from February 2011, as the Chinese New Year was on 15 February 2011 and on 23 January 2012. Overall, February 2012’s recovery is reasonable, considering February 2012 also had additional holidays for a generally much shorter working month.

- Household loans applied had generally recovered but not the household loans approved.  In the household segment, loans applied has generally normalised to the average of 2011, but this was not the case for loans approved. Absolute loans approved appears to be lower than the average achieved on a MoM basis in 2011, indicating that  borrowers were likely to have continued to make multiple applications, but loans approved could have been delayed partly by the increased documentation process required under the new Responsible Lending Guideline. 

- Likely due to continuing impact from Responsible lending Guideline. From this, we believe that there is continuing impact from the new Responsible Lending Guideline. Nevertheless, we are already projecting a relatively low loans growth of 6.4% for 2012F for the sector, which is significantly lower than the 13.6% achieved in 2011. Thus, we are unlikely to change our forecasts based on February 2012’s statistics. 

- Gross impaired loans improved in February 2012 following an uptick in January 2012.  More importantly, overall gross impaired loans improved with a 0.5% MoM drop in February 2012. Gross impaired loans ratio remained unchanged for the fourth consecutive month at 2.7% in February 2012, while loan loss cover rose to 97.5% in February 2012, from 96.6% in January 2012. There were improvements in two of the three major corporate segments, i.e. construction and working capital loans, while the other purposes segment continued to record a marginal increase. 

- Some consumer-related impaired loans was also better in February 2012. As for the consumer-related segment, there was now an improvement in the residential mortgage and consumer durables segments. This indicates that the January 2012 uptick was likely caused by historically slower repayments during the school holiday and festive season spending.

- Maintain overweight. February’s banking statistics indicate continuing  impact from the new Responsible Lending Guideline in terms of top line growth, but we are likely to maintain our overall loans growth, given that our projection is already quite low. More importantly, gross impaired loans have improved – affirming our belief there should be room to lower our loan loss provisions ahead. Maintain overweight on the sector.

Source: AmeSecurities 

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