MODERATE GROWTH: Loan growth for Octber 2011 moderated to 13 per cent y-o-y and 0.5 per cent m-o-m, taking the year-to-date loan growth to 10.6 per cent.
KUCHING: The banking sector is forecasted to see stronger growth in the coming months in view of forward indicators such as increase in loan applications and the absence of stress in asset liquidity.
Loan growth for Octber 2011 moderated to 13 per cent year-on-year (y-o-y) and 0.5 per cent month-on-month (m-o-m), taking the year-to-date loan growth to 10.6 per cent.
The corresponding figures for the previous month saw growth of 13.8 per cent y-o-y and 1.2 per cent m-o-m.
HwangDBS Vickers Research Sdn Bhd analysts Lim Sue Lin and Hon Seow Mee noted, “The weaker momentum was possibly due to smaller loan applications since June 2011 but loan applications grew 11.6 per cent in October, indicating possibly stronger growth traction in the coming months.
“This is supported by seven per cent m-o-m growth in loan approvals in October. Deposit growth was led by current account savings account growth (up 2.7 per cent m-o-m) while fixed deposits growth tapered (down 1.1 per cent m-o-m).
“This was expected as banks were aggressively growing low costs deposits to counter net interest margin (NIM) pressure.”
They observed that liquidity remained ample with loan-to-deposit ratio at 78.8 per cent, spreads between average lending yields at 6.54 per cent and three-month fixed deposit rates at 2.99 per cent were flat.
Gross non-performing loans (NPL) ratio for October was firm at 2.77 per cent compared with 2.8 per cent in September, while absolute NPL continued to trend down with a 0.6 per cent drop for October.
On the other hand, capital market activities remained soft and lacklustre in October with total RM3.4 billion debt issuance and RM3 billion secondary equity issuance, and a third consecutive month without any initial public offerings.
Capitalisation remained robust with Tier-1 capital adequacy ratio (CAR) and risk weighed capital adequacy ratio (RWCAR) strengthening to 12.9 per cent and 15 per cent respectively, compared with September’s CAR and RWCAR ratios of 12.5 per cent and 14.6 per cent.
“We like Alliance Financial Group for its scalable domestic franchise and noninterest income traction, which ensures sustainable earnings and return on equity.
“Among large caps, we prefer Malayan Banking Bhd for its resilient transactional banking income and dividend yields.
“We remain favourable on Hong Leong Bank Bhd for synergies it will extract as a newly merged entity, via improved NIMs and presence in automobile as well as small and medium sized entrepreneur segments,” they opined.