Banking Sector - Taking comfort in relatively healthy deposit levels

Deposit growth remained robust. Whilst leading loan indicators have slowed, we take comfort that deposit growth had remained strong. Overall deposit growth remained sturdy at 13.8% in April 2012, above loans growth of 12.1%. Bank Negara announced an industry loan-to-deposit ratio (LDR) of 79.6% in April 2012.

Excess deposit over loan is RM313bil currently.  As a gauge, excess deposit over loan for the banking system as a whole now currently stands at RM313bil in April 2012. This is significantly higher than RM229bil in September 2008, just before the start of the financial crisis. 

Core deposit growth remains healthy.  Core deposit, which we have calculated as total deposit less other deposits remains healthy at RM1,047bil in April 2012. This exceeded total loans by RM16bil (September 2008: RM53bil), still in positive territory (See Chart 1 and Table 2 in page 2 for breakdown).  

Private sector deposit growth has picked up strongly. Private sector deposit continues to chalk up healthy growth, with business segments’ deposit growth stronger at 21.7% in April 2012 (March 2012: 18.9%). Individuals’ deposit growth was at 12.3% in April 2012, unchanged from March 2012’s 12.3%. Thus, the total for these two segments came up to RM943bil. This means that an excess of total loan over deposit of RM45bil in April 2012 (September 2008: RM20bil). This is a level similar to 2006’s (see Chart 1 in page 2 and Table 3 in page 3), but is certainly much lower than the circa RM145bil during the 1997-1998 crisis.  

Greater external uncertainty? Elsewhere, the Reserve Bank of Australia (RBA) has cut its cash rate by 25bp yesterday, marking the second consecutive month of monthly reduction. This came following May’s surprise 50bps reduction.  Australia’s key lending rate has now been reduced to 3.5% from 3.75%, the lowest level since November 2009. The previous cuts were 25bps in November 2011 and 25bps in December 2011, taking the cash rate down from recent peak of 4.75%. This would be the fourth rate cut since November 2011. In the accompanying statement, RBA governor Glenn Stevens said "financial market sentiment has deteriorated over the past month. At today's meeting, the board judged that, with modest domestic growth and a weaker and more uncertain international environment the outlook for inflation afforded scope for a more accommodative stance of monetary policy”.   

Maintain overweight. As highlighted in report dated 1 June 2012, Malaysia’s banking statistics remained subdued in April 2012, with new indications that that business borrowers are likely to have turned cautious. The good news is gross impaired loans remain benign and loan-to-deposit ratio remains healthy. We maintain overweight on the sector. 

Source: AmeSecurites