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Sunday, May 31, 2009

Banking:Weakness Ahead

Weakness ahead. Loan disbursements, applications and approvals
slowed in Apr, reflecting cautious sentiment. Loans growth was just
1.4% YTD, and 4.2% annualised. There was a slight uptick in absolute
NPLs, implying stress in some loans segments. The poor 1Q09 GDP
numbers suggest growing stress in system loans over the next few
months. We remain cautious on banks’ profits, especially from 3Q09.
1.4% YTD loans growth. Banking loans (net of repayments) grew to
RM736.5m in Apr ’09 (+0.4% MoM, +10.6% YoY) on expansion in both
household (+0.7% MoM, +8.5% YoY) and business loans (-0.03%
MoM, +9.2% YoY). Disbursements slowed (-6.6% MoM, -6.4% YoY)
but repayments were relatively stable (+1.3% MoM, -2.8% YoY). YTD
loans growth was +1.4% (4M2008: +3.4%), driven by household loans
(+2.2%) while business loans’ growth was anemic (+0.4%).
Forward indicators contracting. Loan applications and approvals fell
YoY: -5.4% and -18.2%. The business segment saw loan applications
and approvals down 24.2% and 35%, while the household segment
continued to see growing appetite in loan applications but flattish loan
approvals. On a MoM comparison, both indicators also showed
contraction. Loan applications fell 1.4% while approvals slipped 0.8%.
Absolute NPLs inched up. Absolute NPLs ticked-up by 0.34% MoM to
RM33.7b (Mar ‘09: -3.7% MoM). However, Apr ‘09’s absolute NPLs
were still lower than a year ago, by 14.7%. We suspect the rising NPLs
came from the business segment, especially exporters. The net NPL
ratio was unchanged at 2.24% due to the expanded loans base. Loan
loss coverage (LLC) remained adequate at 88.5% (Mar ’09: 88.3%).
Stay Underweight. The combined 1Q09 net profit of the six banking
stocks we cover was down 2.1% QoQ, and a sharper 13.1% YoY, on
lower treasury and FX income and higher loan loss provisions. We
expect sector earnings to contract 10% YoY in 2009 and reiterate our
concerns on asset and loan quality as the economy contracts over the
next two quarters. Our analysis shows a 3-6 months interval from GDP
trough to NPL peak. Banks are set to report weaker profits

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