Banking Sector - Slow prelude to year-end OVERWEIGHT

- Anaemic indicators in November 2012.  Loans applications fell by 19.0% in November, after turning in a flat performance of -0.4% in October 2012. Loans approved declined 4.1% in November, representing six consecutive months of contraction. 

- Contributed partly by seasonal year-end effect. The November’s slower leading indicators were due mainly to a slower corporate segment. Corporate segment loans applied recorded a decline of 48.9% in November, while loans approved contracted 23.5%. However, this was likely partly due to seasonally slower year-end effect. 

- Auto loan applications surprisingly resilient. One unexpected bright spot was still auto loans applied, which was surprisingly quite resilient with a growth of 13.3% in November (October 2012: 17.8%). We believe this is quite positive given that historical year-end auto purchasing activities tend to be slower, given consumer perception that vehicle value will soon reflect the impact from a new calendar year.  

- Some upticks in gross impaired loans. Gross impaired loans on an absolute basis posted a marginal rise of 0.5% MoM or by RM108mil in November 2012. The segments which experienced some upticks were transport vehicles, personal use, construction, working capital and other purposes segments. 

- But gross impaired loans ratio remained low and unchanged at 2.1%. This was in contrast to October 2012 which showed an improvement in almost all segments except for the other purposes segment. However, gross impaired loans ratio was unchanged and remained low at 2.1%  in November. Loan loss cover remained above 100%, at 101.9% in November (October 2012: 102.4%).  

- Maintain overweight. Our buys are CIMB, PBB and RHB Cap.

Source: AmeSecurities