Banking Sector - Festive season partly contributed to a slow August 2012 OVERWEIGHT

- Leading loan applications contracted for second consecutive month.  Loans applications recorded a contraction of 9.9% in August 2012, the second consecutive month of contraction following July 2012’s decline of -6.0%. Loans approved fell by a larger pace of 13.0% in August 2012 compared with -0.2% in July 2012. 

- Weaker household segment in August 2012. Both the household and corporate segments were weaker in August 2012. The household segment’s loans applied declined 6.8% in August 2012 compared to a 6.2% growth in July 2012. Loans approved was also lower for the household segment with a -3.9% drop, compared to a growth of 5.1% in July 2012. This was likely due to the holiday period effect given that the Hari Raya season had started earlier from mid-August this year compared with end-August last year. 

- Auto loans applications and approvals were slower. The auto segment’s loans applications, which had been the main driver to household segment over the past few months, now posted a decrease of 4.2% in August 2012, against a strong growth of 32.9% in July 2012. Auto loans approved registered a growth though of 8.1% in August 2012, although the growth  was considerably slower than July 2012’s 25.1%.  

- Corporate segment softer as well. The corporate segment posted the second consecutive month of declines for the loans applied and approved. This came partly from weaker other purposes’ segment (which includes government spending) as well as the working capital segment. 

- We expect slow September month.  The August 2012 numbers were weak, partly due to the seasonal holiday period. With news of a possible excise duty being reduced for the auto segment having emerged since early September and given the post-Hari Raya period, we expect auto loans applications and approvals to have remained soft. Elsewhere, we also foresee the household’s residential and non-residential mortgage segments to remain soft as consumers are likely to adopt a wait-and-see attitude pending the general election. 

- Maintain overweight. Our loans growth forecast for the sector from a bottom-up basis is 8.0%. This is already significantly lower than the 13.6% achieved in 2011, and 12.4% growth in August 2011. Based on the updates from banks, all of them are still maintaining a higher loan growth forecasts. Given that we are already conservatively forecasting a lower loans growth, we are maintaining our forecasts based on the latest banking statistics.    

Source: AmeSecurities