Banking Sector : Key loan indicators remain soft NEUTRAL

STOCK FOCUS OF THE DAY

Banking Sector : Key loan indicators remain soft                NEUTRAL

Industry loan growth continues to moderate. The trend of slowdown in industry loan growth continues with a growth of +5.6% YoY in June 2016 contributed by the slowdown in both business and household loans. Growth in loan applications was slower while loan approvals continued to be weak in June. On loan applications, the improved loan demand from the non-household loan applications was offset by slower growth in household loan applications. Elsewhere, loan disbursement slowed down significantly while loan repayments were slower in pace compared to the preceding month. Industry deposit growth continued to be subdued at -0.5%YoY and is likely to remain slow for the remainder of CY16. There were outflows of deposits in June contributed by a contraction in deposits of business enterprises. Industry CASA ratio inched up slightly to 25.9% but CASA growth remain flattish at -0.4%YoY. Industry liquidity continues to be tight with a LD ratio of 87.8%. The industry’s average lending rate and interest spread widened in June but it is expected to decline in July due to Monetary Policy Committee’s decision to reduce the OPR by 25bps to 3.00%.

On concerns of banks’ exposure to Swiber Holdings which has filed for liquidation, we gather that RHB Bank’s exposure to Oil & Gas sector is 2.7% of its total loan book with exposure to Oil & Gas Companies (including Swiber Holdings) of circa SGD500m. Meanwhile, for Maybank its exposure to the Singapore companies in energy and shipping sector comprises 4.8% of its Singapore loan book which equates to 1.2% of the Group’s total loans. Both RHB Bank and Maybank’s exposure to Swiber is in the form of holding of debt papers, hence is not expected to impact credit cost but is expected to cause an increase in impairment of securities on 2Q16 or 3Q16  earnings. 

Maintain NEUTRAL on the sector. Our buys are on CIMB Group (Fair Value: RM5.50) and RHB Bank (Fair Value: RM6.30).

Others :

Hartalega Holdings : 1Q17 - Rebounds from the low         HOLD

Digi.Com : 8GB of video streaming for Digi Live prepaid  HOLD

QUICK TAKE

Sime Darby : Signs MoU on property project in Indonesia             HOLD

ECONOMIC HIGHLIGHTS

Japan  : Is Japan back to the Keynesian school?

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