Sector update — Banking
Loan growth was stable in February 2013, growing 0.6 per cent month-on-month (Jan-13: +0.6 per cent month-on-month) with consumer loans (mainly property loans) being the key driver. Business loans were still slow, inching up by just 0.3 per cent month-on-month over the past two months. Loan applications and approvals dropped month-on-month largely due to festive holidays in February. Our 2013 loan growth assumption is 10 per cent vs the industry’s loan growth of 11.4 per cent year-on-year.
Similarly, deposit growth was also slower (+0.2 per cent month-on-month) led by a slight contraction in fixed deposits (-0.1 per cent month-on-month) while CASA rose 0.8 per cent month-on-month. CASA to total deposits inched up to 26.1 per cent from 25.0 per cent a year ago, reflecting the banks efforts to focus on low cost funding.
Average lending yields rose 3 bps month-on-month while 3-month fixed deposit rate remained unchanged at 3 per cent, thus improving loan spreads marginally in February 2013.
The banking system remain well capitalised under the new Basel III Capital Adequacy Framework with CET-1 CAR, Tier-1 CAR and total CAR of 12.1 per cent, 13 per cent and 14.5 per cent respectively.
Asset quality remains robust with gross NPL ratio remained unchanged at 2 per cent, but absolute NPL inched up marginally 0.8 per cent month-on-month.
Maybank (BUY; TP RM10.60) remains our pick for dividend yields and potential upside surprise from its Indonesian operations. Hong Leong Bank (BUY; TP RM17.00) could see value enhancement and improve capital efficiency from possible corporate streamlining exercises. RHBC (BUY; TP RM9.30) remains a value play with expectations of improving non-interest income post-acquisition of OSK IB.