Banking Sector - Cautious retracement in June 2012 OVERWEIGHT

- Leading loan indicators retraced in June 2012.  Loans applications growth was slower at 9.7% in June 2012, after a revival at 15.1% in May 2012. Similarly, loans approved recorded a 3% decline in June 2012, compared to a robust 18.2% growth in May 2012.

- A more cautious household segment. The slower loans applied growth came from a marginal decline in the household segment, which recorded a contraction of 1.6% in June 2012 after expanding strongly by 12.7% in May 2012. Similarly, the loans approved for the household segment was also more subdued with a 3.6% contraction in June 2012 (May 2012: +6.0%).

- Slower mortgage and non-residential mortgage segments offset the pick-up in auto. There was some deceleration in the mortgage and non-residential mortgage segments, which offset the continuing good pick-up seen in the auto segment. 

- Corporate loans applied and approved were relatively stable. Working capital demand from the business borrowers is still positive with both the loans applied and approved in the mid-teen levels, indicating that while  business borrowers remain cautious, there have been no further cutbacks since the earlier cautious stance adopted in March-April 2012. 

- Gross impaired loans ratio of only 2.2%. Gross impaired loans were reduced significantly by RM1,817mil or 7.1% MoM in June 2012. This takes the gross impaired loans ratio to a multi-year low of 2.2% in June 2012, from 2.4% in May 2012. This would be the lowest level since the series started in 1996.  We believe there were some write-offs in June 2012, There were marginal upticks for only three segments in June 2012, namely the purchase of securities, credit card and construction segments. 

- Maintain overweight. The slower mortgage segment for both the loans applied and approved figures in June 2012 indicated that consumers had likely turned cautious following renewed external uncertainty since mid-May 2012. From our recent company visits, banks have indicated some improvements since the trough months of March-April 2012, with dissipating impact from the new Responsible Lending Guideline. June 2012’s impaired loans trend is still surprisingly resilient, and reaffirmed our latest company visits whereby banks have indicated that impaired loans remain stable with no major worrying signs yet.  Our sector rating is still OVERWEIGHT, with BUYs now being CIMB, HLBB, PBB and RHB Cap. 

Source: AmeSecurities