• Stay NEUTRAL with Public Bank and Hong Leong Bank as Top Picks. April system loan grew 0.08%, driven by wholesale and retail, and households. Loan application however, moderated considerably which portends slower loan growth in the coming months. Household loan demand is dissipating quickly while business sectors most affected by the pandemic are in need of additional financing. System GIL ratio remained fairly stable for the month and we opine Bank Negara Malaysia’s forbearance measure will keep the ratio tamed in the next six months.

• April loan growth saw mild 0.08% MoM uptick from March (+0.7% MoM), led by wholesale, retail, restaurants and hotels (+1% MoM) and residential mortgages (+0.3% MoM). This was however offset by a sharp 7.4% MoM decline in credit card balances. All sectors experienced varying degrees of moderation in growth momentum as both consumer and business sentiment were negatively impact by COVID-19 and the Movement Control Order (MCO). The expiration of Home Ownership Campaign (HOC) 2019 in Dec-2019 further adds on to the pressure in residential mortgages loan growth as well. 4M20 annualised loan growth waned slightly to 2.3% from 2.7% in March.

• Household loan applications down sharply. System loan applications on 3-month moving average (3MMA) basis dipped 6.4% MoM on a large 21.6% contraction in household loan demand despite the fact that the business loan applications saw a 10.8% MoM increase. Demand for mortgages, transport vehicle and personal use fell 17.3%, 30.6% and 24% MoM. Loan applications from wholesale, retail, restaurants and hotels jumped 24.9% MoM.

• System deposits grew 0.9% MoM largely lifted by 5.7% MoM growth in savings deposits. Deposits by individuals (38% of system) were up 1.7% MoM while deposits by businesses (31% of system) fell 0.4% MoM. System CASA ratio climbed to 36.3% (March: 35.8%). System LDR fell to 89.9% in April (March: 90.6%).

• Asset quality slight improvement. System GILs saw a mild improvement of 0.6% MoM, mainly driven by 3.9% lower household GILs – residential mortgages, transport vehicles and personal uses saw 2.8%, 7% and 5.5% decline in GILs. We believe this could be due to borrowers making payments during the month after being informed by the banks that moratorium starts from 1 April, as opposed to end-March. Finance, insurance and business activities saw a 6.2% MoM increase in GILs. Overall system GIL ratio was largely unchanged at 1.58% (March: 1.59%).

• Average lending rate (ALR) declined 14bps to 4.26% as banks continued to reprice loans downwards after the two overnight policy rate (OPR) cuts in January and March. 10-year Malaysian Government Securities (MGS) yield compressed 49bps as the market anticipated more monetary easing policies by Bank Negara Malaysia.

Source: RHB Research - 2 June 2020