- Leading loan indicators remained soft in July 2012.
Leading loan indicators remained soft for the second consecutive month in July
2012, with loans applications growth registering a decline of 6.0% from a
growth of 9.7% in June 2012. This would be the first YoY decline since January
2012’s -2.7%. Loans approved also declined marginally, by -0.2% in July 2012
from -3.0% in June 2012.
- Weaker corporate segment in July 2012. Both leading
indicators were affected by a weaker corporate segment this time around, unlike
in previous months whereby the household segment was the major drag. Corporate
loans applied recorded a large decrease of 27.2% in July 2012, in contrast to
the robust growth of 28.0% in the previous month. Similarly, corporate loans
approved were 11.0% lower in June 2012, compared with the flat 0.2% growth in
June 2012. The household segment was largely supported by a strong auto
segment. This likely reflected ongoing positive impact from new models as well
as pre-Hari Raya bookings.
- Better asset quality provides ongoing reassurance. Gross
impaired loans came down further by RM371mil, or 1.6% MoM in July 2012. This
was followed through from a large reduction of RM1,817mil or 7.1% MoM in June
2012. Gross impaired loans ratio was unchanged at 2.2% in July 2012 (June 2012: 2.2%). There were marginal
upticks in selected retail segments in transport vehicles, non-residential
property and consumer durables, probably due to early effects from seasonal
festive season in August 2012. Nevertheless, the upticks look marginal. Loan
loss cover has now crossed above 100%, to 100.9% in July 2012 (June 2012:
98.9%). This would be the first time loan loss cover for the industry has increased to above 100% since
the series was started in 1998.
- Large drop in average lending rate. Average lending rate declined by a relatively
large quantum of 18bps on a MoM basis to 4.70% in July 2012, following an
improvement of 8bps MoM to 4.88% in June 2012. With the decline, average lending
rate is now at the lowest level since 1994, compared with previous low of 4.74%
in March 2012.
- Maintain overweight. July 2012’s banking statistics
indicate a mid-year fatigue in terms of corporate leading loan indicators. The
household segment’s growth is still largely supported by the auto segment,
while there appears to be prevailing cautiousness in the property-related loans
segments. The unexpectedly large drop in
average lending rate is likely to cause further concerns over NIM, although it
remains to be seen whether the trend will continue. Our sector rating is still
OVERWEIGHT, with BUYs now being CIMB, PBB and RHB Cap.
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