Banking Sectors Quarterly 1Q12012

Retail applications picking up
•  Loan growth moderated due to a slower approvals in the past three months, but retail applications picked up in February
•  Spreads fell marginally due to competition in lending
•  Our top pick is Maybank

Loan growth continued to moderate. Loan growth moderated for the second consecutive month, at 11.9% y-o-y (Jan-12: +12.1%) due to a slowdown in overall loan approvals since Dec-11. Business loan approvals remained soft (-21% m-o-m vs -24% in Jan-12) led by slower approvals for construction and working capital loans. But retail loan approvals improved, especially mortgage (+25% m-o-m) and loans for purchase of non-residential property (+24%). HP approvals remained soft (-3% vs -12% in Jan-12).

Total loan applications picked up in Feb-11 (+1.4%), driven by retail loans: mortgage (+27%), non-residential property (+50%) and HP (+13%). Business loan applications continued to decline, falling 12%. Our FY12 loan growth target remains at 13% as we expect a subsequent pick up in retail and business loans.

Ample liquidity and robust asset quality. Deposits grew 14.8% y-o-y or 0.5% m-o-m, implying ample liquidity in the system. Loans-to-deposit ratio remained stable at 76%. Fixed deposits grew 2% m-o-m but CASA growth was flat. Gross NPL ratio was stable at 2.7% while absolute NPL was flat. Loan loss coverage
remained high at 97.5%, while capitalisation remained strong with Tier-1 CAR at 13% and RWCAR at 14.8%.

Persistent competition in lending. Average lending rate softened 2bps in February (5.08% vs 5.10% in Jan-12) while 3-month fixed deposit rate was flat at 2.99%, resulting in narrower spreads.

Our top pick is Maybank for its resilient transactional banking income and dividend yields. We like Hong Leong Bank for post-merger synergies, via improved NIMs and presence in auto and SME

banking stocks by: DBS Vickers