Kenanga Research & Investment

Author: kiasutrader   |   Latest post: Mon, 30 Nov 2020, 4:55 PM


Banking - June 2020 Stats – Household Loan Applications and Approvals Rebounded

Author:   |    Publish date:

June 2020 system loans growth picked up to 4.1% YoY vs 3.9% YoY in May although the main highlight was the strong rebound in household loan applications (+133% MoM) and approvals (+110% MoM) – possibly from improved economic activities and pent-up demand. It will be interesting to see in the coming months if such levels of applications and approvals can be sustained. Meanwhile, asset quality appears well preserved with system gross impaired loans down 5% MoM while loan loss coverage rose further to 93% from 89% in May on a combination of improved asset quality and banks building up reserve coverage in 2QCY20. We keep our NEUTRAL call on the sector with RHB (OP, TP: RM5.75) as our top sector pick while we also like HLBK and AMMB.

System loan growth picked up in June 2020 (+0.6% MoM/+4.1% YoY vs May: +0.2% MoM/+3.9% YoY) following the easing of the movement control order. Loans to both household and business segments rose by 0.6% MoM (May: 0.1%/0.3% respectively) while YoY, loans to households were up 3.5% YoY (May: 3.2% YoY) while loans to business remained stable at 4.9% YoY. For the household segment, the pickup in loan growth was driven by a broad-based increase in loan disbursements, especially for residential mortgages, while for the business segment, disbursements were higher for sectors such as manufacturing; construction; finance, insurance and business activities; and education, health and others.

In terms of loan leading indicators, we note a similar upturn in momentum – possibly from improved activities and pent-up demand. Overall system loan applications jumped 45% MoM (+8% YoY) – driven by loan demand from households (+133% MoM/+16% YoY) while business loan applications were more muted (-7% MoM/-2% YoY). For the household segment, the rise in loan applications was across the board. Meanwhile, system loan approvals surged 66% MoM (-13% YoY) with household loan approvals up 110% MoM (-20% YoY) while business loan approvals rose 41% MoM (-5% YoY). Household loan approvals enjoyed a general increase while for business loan approvals, there was an uptick in loans in the manufacturing; real estate; transport storage and communication; and finance, insurance and business activities.

As for asset quality, system gross impaired loans (GIL) declined 5% MoM (-3% YoY) with household impaired loans down 7% MoM (-4% YoY) and business impaired loans 4% lower MoM (-3% YoY). Consequently, there was a slight improvement in system GIL ratio to 1.5% from 1.6% in May. Except for an uptick in impaired loans for the transport, storage and communications sectors, asset quality was broadly better across the board. As compared to Mar 2020, system GIL was down 7% QoQ, led by the improvement in household GIL (-14% QoQ) while business GIL was down 3% QoQ. Recall that the banks had seen a rise in incidences of borrowers skipping repayments in Mar after the announcement of the loan moratorium and the statistics suggest that there could have been some repayment catch-up subsequently. System loan impairments reserve eased 1.1% MoM but was up 6% QoQ as banks were booking in MEV adjustments. Consequently, system loan loss coverage (LLC) rose further to 93%, as compared to 89% in May 2020 and 82% in Mar 2020.

YoY, June 2020 total deposits rose at a faster clip of 5% as compared to 4% YoY in May 2020. Deposits from individuals were up 7% YoY while business deposits rose 1% YoY, as compared to a 1% YoY decline in May. CASA growth remained robust at 17% YoY (May: +14% YoY) while fixed deposits were flat YoY (May: -1% YoY). System LDR continued to decline to 87% from 88% in May and 89% in Dec 2019. Liquidity coverage ratio looks ample at 149% vs 140% in May (Dec 2019: 149%), which appears to support some banks` expectations that LCR should remain stable during the moratorium period. Finally, system CET-1 ratio was unchanged MoM at 14%.

Maintain NEUTRAL sector call. In our view, banks earnings ahead remain uncertain and volatile while the path to recovery is unlikely to be clear cut. Early signs from the banking statistics suggest that pre-emptive loan provisioning may see an acceleration in 2Q. In mitigation, the re-opening of the economy and significant cuts to policy rate have helped clear some overhang for the sector. Also, Day One Modification losses may not be as bad as feared. RHB (OP, TP: RM5.75) is our top sector pick on attractive valuations and solid capital ratios to absorb higher loan allowances while maintaining a decent dividend payout. In addition, it is less impacted by Day One modification losses. We also like Hong Leong Bank (OP; TP: RM17.00) as a defensive, “high quality” bank with a strong digital infrastructure that is poised to benefit from a post Covid-19 environment. AMMB’s (OP; TP: RM3.60) valuations appear undemanding and we think the stock could be an attractive catch-up play. Furthermore, AMMB had booked in aggressive pre-emptive loan provisioning during its 4QFY20 results, which could help keep further allowances ahead in check while management’s recent guidance on Day One Modification losses seem much lower than initial estimates. Near-term key upside risk to our sector call is a liquidity fuelled rally and/or rotational play into value/cyclicals. Key near-term downside risk is the emergence of a Covid-19 second wave.

Source: Kenanga Research - 3 Aug 2020

Share this

Related Stocks

Chart Stock Name Last Change Volume 
RHBBANK 5.15 0.00 (0.00%) 13,709,800 
HLBANK 17.18 +0.16 (0.94%) 3,412,500 
AMBANK 3.32 -0.13 (3.77%) 8,029,500 

  Be the first to like this.

I3 Messenger
Individual or Group chat with anyone on I3investor
MQ Trader
Stock Screener using Technical and Fundamental criteria
MQ Affiliate
Join the MQ Affiliate Program today to earn rewards

558  569  568  475 

Top 10 Active Counters
 AT 0.200.00 
 YTL 0.645-0.005 
 SAPNRG 0.1150.00 
 KANGER 0.18-0.005 
 HIAPTEK 0.28+0.025 
 TDM 0.305+0.04 
 VIVOCOM 1.14+0.13 
 HIAPTEK-WB 0.065+0.02 
 FOCUS 0.67+0.015 
 BINTAI 0.82+0.025 


1. The Equity Market Index Benchmark in Malaysia CMS
2. Trading Scenarios of Derivatives Bursa Derivatives Education Series
3. Derivatives 101 Bursa Derivatives Education Series
4. Why Trade FKLI? Bursa Derivatives Education Series
5. MQ Trader - Introduction to MQ Trader Affiliate Program MQ Trader Announcement!