Closing the year on a stronger footing

by **Cals** Wed 05 Feb 2014, 10:48

Closing the year on a stronger footing
Business & Markets 2014
Written by AmResearch
Wednesday, 05 February 2014 10:03

Banking sector
Maintain neutral on the banking sector: Loan applications growth tapered off to 10.1% year-on-year (y-o-y) in December 2013, after recording an unexpectedly large spike of 40.8% y-o-y in November 2013.

The slower growth came from a more normalised working capital applications growth of 8.2% y-o-y in December, compared with a large spike of 114.8% y-o-y in November 2013.

Thus, the latest December 2013 data confirmed that the large increase in November 2013 is likely due to some one-off lumpy elements that were not sustainable.

However, loans approved grew at a stronger pace of 20.4% y-o-y in December 2013, much better than the 8.6% y-o-y contraction seen in November 2013.

Industry loan growth closed the year at 10.6% y-o-y in December 2013, well above the 9.9% y-o-y rate in November 2013.

This takes the industry loan growth rate to above 10% after registering a growth rate of below 10% between May and November 2013.

The industry’s loan-to-deposit ratio (LDR) came in at 84.6% in December 2013, little changed from November 2013’s 84.8%. LDR remains at its highest level in almost 10 years since February 2004’s 84.9%.

Gross impaired loans improved significantly as there was a large 4.9% month-on-month reduction in absolute amount in December 2013.

We believe this may be due to year-end seasonal write-offs by some banks. Gross impaired loans ratio had declined to 1.9% in December 2013 from 2.0% in November 2013.

Loan loss cover strengthened significantly to 107.6% in December 2013 from 97.1% in November 2013.

The industry ended the year on a stronger footing given the improvements in leading loan indicators, deposit growth and impaired loans data.

Based on our latest company visits, we believe that the household leading indicators could be softer in the early weeks of January 2014, due to public holidays and the shorter working period.

The corporate loans trend is also likely to be soft due to delays in the implementation of Economic Transformation Programme-related projects. We maintain our sector rating at “neutral”. — AmResearch, Feb 4

This article first appeared in The Edge Financial Daily, on February 05, 2014.