Banking Sector - Signs of revival in May 2012 OVERWEIGHT

- Revival in leading loan indicators.  Loans applications resumed a double-digit growth, of 15.1% in May 2012 after a slowdown in April 2012 to 5.8%. The stronger loan applications came from the household segment. The household segment expanded at a much stronger rate of 12.7% in May 2012, following two months of contraction in April (-2.3%) and March (-4.4%). 

- Led mainly by the auto segment.  Loans approved were also similarly resuscitated with growth back to a double-digit level, of 18.2% in May 2012. This follows a double-digit decline of 11.4% in April 2012 (March 2012: -2.2%), the first double-digit decline in loans approved growth since August 2009’s -22.9% drop. The main driver for stronger growth in both the application and approval trends was the auto segment, with loans applied registering an 18.2% increase in May 2012, stronger than April 2012’s 9.4% rise. Auto loans approved rose 17.1% in May 2012, following a -6.3% decline in April 2012. This was due largely to launches of new models.

- Industry loans growth of 12.5%. Loans growth was slightly higher at 12.5% in May  2012 (April 2012: 12.1%). Retail loans (65.0% of total loans) rose 13.0% (April 2012: 13.1%). Corporate loans growth was higher at 11.5% (April 2012: 10.1%)

- Improvement in gross impaired loans.  Gross impaired loans declined in May 2012, with the absolute figure falling by RM459mil or 1.8% MoM. This was in contrast to previous uptick of RM60.4mil or 0.2% MoM in April 2012. Gross impaired loans ratio consequently improved to 2.4% in May 2012, from 2.5% in April 2012. The improvement was led by four segments, i.e. residential mortgage, non-residential mortgage, consumer durables and other purposes. May 2012 therefore reversed the upward trend seen in April 2012 for these segments. Loan loss cover rose to 93.2%, from 91.2% in April 2012.

- Maintain overweight. The better-than-expected household loans applied and approved figures in May 2012 are a positive surprise, in our view. This was despite renewed uncertainty over Europe, which started in mid-May, and indicated that while the household segment has been cautious, there is still capacity to borrow. The May data also indicated that the impact from the new Responsible Lending Guideline, which came into effect from 1 January 2012, may be abating. May’s impaired loans trend reaffirmed our latest company  visits where banks have indicated that impaired loans remain stable with no major worrying signs yet.  Our sector rating is still OVERWEIGHT, with BUYs now being AFG, HLBB, Maybank, PBB and RHB Cap.  

Source: OSK