banking sector update : jun ‘10 system data – yoy loan growth at a high - 02/08/2010

8/9/2019 Banking Sector Update : Jun 10 System Data YoY Loan Growth At A High - 02/08/2010

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Table 1: Sector Valuations

PER (x) EPS gwth (%) P/ BV (x) ROE (%) Net Div Yld (%)Price FV Rec FY10 FY11 FY10 FY11 FY10 FY11 FY10 FY11 FY10 FY 11

Maybank 7.74 9.66 OP 15.1 12.8 35.7 18.1 2.0 1.9 14.0 15.2 2.8 3.4CIMB 7.40 8.40 OP 15.5 13.1 20.2 17.9 2.4 2.2 16.1 17.4 1.3 1.3

Public Bank - L 12.16 13.75 OP 14.8 13.3 11.8 11.8 3.4 3.0 24.2 23.8 3.7 4.0

AMMB^ 5.15 6.60 OP 12.9 11.3 14.8 14.6 1.5 1.3 11.9 12.3 2.7 3.1AFG^ 2.92 3.40 OP 12.0 11.0 25.2 9.1 1.4 1.3 12.2 12.0 2.2 2.2Affin 3.05 3.55 OP 11.1 10.3 10.5 7.6 0.9 0.9 8.6 9.0 2.1 2.1

EON Cap 6.96 7.92 MP 12.9 11.4 9.4 13.2 1.2 1.1 10.0 10.4 1.4 1.4HLB 9.01 9.20 MP 15.1 15.1 (4.7) 0.2 2.2 2.0 14.8 13.4 2.0 2.0

RHB Cap* 6.49 NR NR 10.5 9.3 10.7 12.9 1.5 1.3 14.6 14.8 2.8 3.0

Sector Wt. Avg 14.5 12.7 19.5 14.4 2.3 2.1 16.3 16.9 2.5 2.7

*Not under coverage. Forecasts based on IBES estimates ^FY10-11 valuations refer to those of FY11-12

Jun 10 banking system loan growth unabated up 12.5% yoy.

According to BNMs statistics, Jun 10 loan growth stood at +12.5% yoyvs. +11.7% yoy in May 10, the strongest monthly growth rate achievedthus far this year. Growth was largely broad-based with the household

and business segments up +12.9% yoy (May 10: +12.5% yoy) and+7.2% yoy (May 10: +6.1% yoy) respectively.

Leading indicators still firm despite BNM normalising interest rate.Total applications were broadly stable mom but absolute loan approvalsaccelerated to RM33.3bn (+24.2% yoy) vs. RM28bn (+11.2% yoy) in May

10 with the pick-up mainly from the business segment (+35.6% yoy;+37.3% mom). Juns statistics suggest that demand for loans has notbeen dampened by the two hikes in Mar and May in the Overnight PolicyRate (OPR) by BNM. While loan growth ahead may moderate due to a

higher base effect and/or a pick-up in capital market fund raisingactivities, the strong Jun numbers have prompted us to raise our 2010loan growth projection for the banking system to +10-11% from +9%.

Industry asset quality stable mom. Absolute NPLs as at end-Jun 10was broadly stable mom. Consequently, Jun 10 system-wide three-month

gross and net non-performing loan (NPL) ratios remained at 3.5% (May 10: 3.5%) and 2.2% (May 10: 2.2%) respectively. while loan losscoverage (LLC) improved slightly to 93.1% (May 10: 91.7%). Ascompared to end-Mar 10, absolute NPLs as at end-Jun 10 rose 5.3%

with the increase largely due to the business segment while NPLs for thehousehold segment declined by 8.3%. This trend could potentially be due

to the adoption of FRS139.

ALR higher but spread lower. Commercial banks ALR in Jun 10

trended higher to 5.05% (May 10: 5.01%) but spread fell to 2.3% (May10: 2.33%) as the overnight interbank rate also trended higher to 2.75%(May: 2.68%), possibly in anticipation of another 25bps hike in OPR.

LD and capital ratios. Jun 10 loan-deposit (LD) ratio increased to

81.4% (May 10: 80.5%). Industry capital ratios remained broadly stablemom and healthy with the core capital ratio and RWCR at 12.9% (May

10: 13.1%) and 14.8% (May 10: 15%) respectively.

Investment case. On the whole, Juns numbers help support our

positive stance on the sector as especially given that loan growth appearsbroad based, i.e. both the business and household segments did well. Thiswould be further aided by the three OPR hikes that have taken place thus

far and taken together, these factors would help support earningsmomentum in 2H2010. Thus, we are maintaining our Overweight ratingon the sector. We like Maybank, CIMB, AMMB and Public Bank for an

exposure to large cap banking stocks. Affin and AFG are also rated asOutperform while EON Cap and HL Bank are both rated Market Perform.

Corpora te H igh l ights

Sec to r Upda te

BankingJun 10 System Data YoY Loan Growth At A HighM

alaysia

Recom : Overweight

(Maintained)

Chart 1. Industry NPL

24,000

29,000

34,000

39,000

44,000

49,000

54,000

59,000

64,000

69,000

Jun-99 Jun-00 Jun-01 Jun-02 Jun-03 Jun-04 Jun-05 Jun-06 Jun-07 Jun-08 Jun-09 Jun-10

(RMm)

1

3

5

7

9

11

13

15

17(%)Gross NPL (LHS) Gross NPL ratio (RHS) Net NPL ratio (RHS)

Chart 2. Industry LLC

35

40

45

50

55

60

65

70

75

80

85

90

95

100

Jan-99

Jan-00

Jan-01

Jan-02

Jan-03

Jan-04

Jan-05

Jan-06

Jan-07

Jan-08

Jan-09

Jan-10

(%)

David Chong, CFA(603) 9280 2186

[email protected]

Please read importan t disclosures at the end of this report.

M

ARKET

DATELINE

PP

7767/09/2010(025354)

2 August 2010

RHB ResearchInstitute Sdn BhdA member of theRHB Banking GroupCompany No: 233327 -M


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Industry Loan Growth And Leading Indicators

Jun 10 banking system loan growth unabated up 12.5% yoy. According to BNMs statistics, Jun 10

loan growth stood at +12.5% yoy vs. +11.7% yoy in May 10, the strongest monthly growth rate achieved thus

far this year. This was largely due to higher disbursements during the month, which, in absolute terms, came

mainly from the business segment (manufacturing and finance, insurance and business services segments). In

terms of yoy growth rate, the household segment saw outstanding loans accelerate further to +12.9% yoy (vs.

May 10: +12.5% yoy) with the key areas of growth still led by the purchase of residential and non-residential

properties, passenger cars and personal use. Due to higher disbursements, business loans outstanding alsoexpanded at a higher growth rate of 7.2% yoy (vs. May 10: +6.1% yoy). However, outstanding loans for the

SMEs sub-segment stayed flat yoy. MoM basis, loan growth was +1.7% vs. +1.4% mom in May 10, which

represents the 13th consecutive month that mom growth was in positive territory.

Monthly applications broadly stable but approvals up. Jun 10 loan applications, in absolute terms, were

broadly stable mom at RM53.1bn (+7% yoy) as absolute loan applications for both the business and household

segments held steady mom. Absolute loan approvals, however, accelerated to RM33.3bn (+24.2% yoy) vs.

RM28bn (+11.2% yoy) in May 10 with the pick-up mainly from the business segment (+35.6% yoy; +37.3%

mom). Loan approvals for the SMEs sub-segment also improved further to +57.3% and +46.5% yoy and mom

respectively (May 10: +7.6% yoy) while loan approvals for households held steady mom at RM16bn (+13.8%

yoy).

Leading indicators still holding firm despite BNM normalising interest rate. Juns statistics suggest that

demand for loans has not been dampened by the two hikes in Mar and May in the Overnight Policy Rate (OPR)by BNM. While loan growth ahead may moderate due to a higher base effect and/or a pick-up in capital market

fund raising activities, the strong Jun numbers have prompted us to raise our 2010 loan growth projection for

the banking system to +10-11% from +9%.

Generally positive for banks. On the whole, Juns numbers help support our positive stance on the sector as

especially given that loan growth appears broad based, i.e. both the business and household segments did well.

This would be further aided by the three OPR hikes that have taken place thus far and taken together, these

factors would help support earnings momentum in 2H2010. As mentioned previously, a potential source of

earnings surprise we see ahead could come from stronger-than-expected loan growth and/or NIM. While our

loan growth assumptions for the larger banks are in line with managements targets, our assumptions for some

of the smaller banks (e.g. EON Cap and Affin) are 3-6%-pts lower than targets. Apart from loan growth, the

impact of the OPR hikes should also be more meaningful in 2H. Generally, our sensitivity analysis suggests that

most of the banks (except for AMMB and Maybank) should be beneficiaries from a rate hike and this would also

help cushion competitive pressures on NIMs.

Table 2 : Loan Composition By Type Of Customers As At End-Mar 10

Maybank CIMB Grp PBB* RHB AMMB HLB EONC Affin AFG

% % % % % % % % %

Loan composition

- Individuals 50.1 46.9 62.2 42.4 61.0 67.3 60.1 42.6 56.8

- SMEs 13.9 14.8 18.0 15.4 10.9 8.9 20.9 27.9 20.5

- Corporates & others 36.0 38.3 19.8 42.2 28.1 23.8 19.0 29.5 22.7

*As at end-Jun 10

Source : Companies

Chart 3 : Annual Loan Growth Chart 4 : Loan Growth Breakdow n

400

450

500

550

600

650

700

750

800

850

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

(RMbn)

2

4

6

8

10

12

(%)Loan (RMbn - LHS) Loan Growth (% yoy - RHS)

0

2

4

6

8

10

12

14

16

18(%) Business Household

Source: BNM Source: BNM


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Chart 5 : Total Loans & Growth (Residential Property) Chart 6 : Total Loans & Growth (Non-Residential Property)

150

160

170

180

190

200

210

220

230

Apr

2006

2007 2008 2009 2010

(RMbn)

7

8

9

10

11

12

(%)Residential property (LHS) % yoy (RHS)

40

45

50

55

60

65

70

75

80

85

Apr

2006

2007 2008 2009 2010

(RMbn)

11

12

13

14

15

16

17

18

19

20

21

22

23(%)

Non-residentia l property (LHS) % yoy (RHS)


Chart 7 : Total Loans & Growth (Transpo rt Vehicles) Chart 8 : Total Loans & Growth (Per sonal Use)

95

100

105

110

115

120

125

130

Apr

2006

2007 2008 2009 2010

(RMbn)

3

4

5

6

7

8

9

10(%)Transport vehicles (LHS) % yoy (RHS)

20

22

24

26

28

30

32

34

36

38

40

42

44

Apr

2006

2007 2008 2009 2010

(RMbn)

6

8

10

12

14

16

18

20

22(%)Personal use (LHS) % yoy (RHS)


Chart 9 : Total Loans & Growth (Wo rking Capital) Chart 10 : Total Loans & Growth (Credit Card)

160

170

180

190

200

210

220

230

Apr

2006

2007 2008 2009 2010

(RMbn)

-2

0

2

4

6

8

10

12

14

16

(%)Working capital (LHS) % yoy (RHS)

15

17

19

21

23

25

27

Apr

2006

2007 2008 2009 2010

(RMbn)

5

7

9

11

13

15

17

19

21

(%)C redit card (LHS) % yoy (RHS)


Chart 11 : Total Loans & Growth (Purchase of Securities) Chart 12 : Total Loans & Growth (Others)

15

20

25

30

35

40

45

Apr

2006

2007 2008 2009 2010

(RMbn)

-40

-20

0

20

40

60

80

100

120

140

(%)Purchase of securities (LHS) % y oy (RHS)

20

25

30

35

40

45

50

Apr

2006

2007 2008 2009 2010

(RMbn)

-40

-30

-20

-10

0

10

20

30

40

50

60(%)

Others (LHS) % yoy (RHS)



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Chart 13 : Indu stry Loan Application s* Chart 14 : Indu stry Loan Applications Breakdow n

15

20

25

30

35

40

45

50

55

2005 2006 2007 2008 2009 2010

(RMbn)

-40

-20

0

20

40

60

80

(%)3-mth moving average (RMbn - LHS) % yoy (RHS)

-50

0

50

100

150

2005 2006 2007 2008 2009 2010

(%) yoy

Business

Zero %

Household

*Based on 3-month moving average

Source: BNMSource: BNM

Chart 15 : Indu stry Loan Approvals* Chart 16 : Indu stry Loan Approvals Breakdow n

9

11

13

15

17

19

21

23

25

27

29

31

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

(RMbn)

-40

-30

-20

-10

0

10

20

30

40

50

60

70

80

(%)3-mth moving average (RMbn - LHS) % yoy (RHS)

-70

-20

30

80

130

180

2005 2006 2007 2008 2009 2010

(%) yoyBusiness

Zero %

Household

*Based on 3-month moving averageSource: BNM

Source: BNM

Industry Asset Quality

Industry asset quality stable mom. Absolute NPLs as at end-Jun 10 was broadly stable mom.

Consequently, Jun 10 system-wide three-month gross and net non-performing loan (NPL) ratios remained at

3.5% (May 10: 3.5%) and 2.2% (May 10: 2.2%) respectively. while loan loss coverage (LLC) improved slightly

to 93.1% (May 10: 91.7%).

As compared to end-Mar 10, absolute NPLs as at end-Jun 10 rose 5.3% with the increase largely due to the

business segment while NPLs for the household segment declined by 8.3%. This trend could potentially be due

to the adoption of FRS139. AMMB and AFG will be reporting their quarterly results based on FRS139 next month,

in addition to the five other banks that already moved to FRS139 for the quarter-ended Mar 10. To recap, under

FRS139, loans that are individually significant (significance threshold varies from bank to bank) are tested for

impairment and loans to SMEs and corporate tend to be of larger value and hence, would cross the significance

threshold and assessed individually.

The corporate sector has, historically, had a higher rate of default as compared to the household segment. In

addition, loans to businesses and corporates are typically given out on a clean basis. Thus, banks with higher

exposures to the SME and corporate segments could now also be harder hit with individual impairment

allowances when credit conditions deteriorate, as compared to banks with a larger proportion of retail

customers. This is because FRS139 requires the entire shortfall between the present value of estimated future

cash flows and the carrying amount to be recognised immediately, as compared to the previous guideline of

staggered provisioning based on the number of months in arrears. Mitigating this impact is that the total

absolute provisioning required may now be lower as compared to previously as the estimated future cash flows

from the impaired loans are now taken into account (previously, provisioning made on the shortfall between

outstanding balance and realisable collateral value).

But improvement in economic conditions could see banks with larger corporate exposure benefitmore. On the flipside, banks with a larger exposure to the corporate loan segment could stand to benefit more

during an upcycle. As corporate return to stronger footing and/or such loans are restructured, there could be


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impairment writebacks. In addition, banks with a higher proportion of corporate loans could mean better

investment banking relationships, resulting in stronger fee-based income when economic conditions are better.

Chart 17 : Indu stry Asset Quality*

24,000

29,000

34,000

39,000

44,000

49,000

54,000

59,000

64,000

69,000

Jun-99 Jun-00 Jun-01 Jun-02 Jun-03 Jun-04 Jun-05 Jun-06 Jun-07 Jun-08 Jun-09 Jun-10

(RMm)

1

3

5

7

9

11

13

15

17(%)Gross NPL (LHS) Gross NPL ratio (RHS) Net NPL ratio (RHS)

* Reflects 3-month NPL classification method and GP8 adjustment (excluding-IIS) In addition, beginning Jan 2010, loans are reported

based on FRS139. The adoption of FRS139 is based on the FYE of the banks.

Source: BNM

Chart 18 : Indu stry LLC: Stronger Chart 19 : Indu stry Absolute Gross NPL & Net NPL Ratio

35

40

45

50

55

60

65

70

75

80

85

90

95

100

Jan-99

Jan-00

Jan-01

Jan-02

Jan-03

Jan-04

Jan-05

Jan-06

Jan-07

Jan-08

Jan-09

Jan-10

(%)

(3,000)

(2,000)

(1,000)

-

1,000

2,000

Jun-02

Dec-02

Jun-03

Dec-03

Jun-04

Dec-04

Jun-05

Dec-05

Jun-06

Dec-06

Jun-07

Dec-07

Jun-08

Dec-08

Jun-09

Dec-09

Jun-10

(RMm)

1

3

5

7

9

11

(%)Gross NPL - mom chg (RMm) Net NPL ratio (%)


Chart 20 : Gross NPL Ratio: Property Residentia l Chart 21 : Gross NPL Ratio: HP

7000

8000

9000

10000

11000

12000

13000

14000

2Q06

3Q06

4Q06

1Q07

2Q07

3Q07

4Q07

1Q08

2Q08

3Q08

4Q08

1Q09

2Q09

3Q09

4Q09

1Q10

2Q10

(RMm)

3

4

5

6

7

8

9

10(%)Gross NPL (RMm - LHS)

Gross NPL (% - RHS)

1500

2000

2500

3000

3500

4000

2Q06

3Q06

4Q06

1Q07

2Q07

3Q07

4Q07

1Q08

2Q08

3Q08

4Q08

1Q09

2Q09

3Q09

4Q09

1Q10

2Q10

(RMm)

1.0

2.0

3.0

4.0

(%)

Gross NPL (RMm - LHS)

Gross NPL (% - RHS)



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Chart 22 : Gross NPL Ratio: Construction Chart 23 : Gross NPL Ratio: Property Non-Residen tial

1300

1800

2300

2800

3300

2Q06

3Q06

4Q06

1Q07

2Q07

3Q07

4Q07

1Q08

2Q08

3Q08

4Q08

1Q09

2Q09

3Q09

4Q09

1Q10

2Q10

(RMm)

7

9

11

13

15

17

19

21(%)


Gross NPL (% - RHS)

1800

2300

2800

3300

3800

4300

4800

2Q06

3Q06

4Q06

1Q07

2Q07

3Q07

4Q07

1Q08

2Q08

3Q08

4Q08

1Q09

2Q09

3Q09

4Q09

1Q10

2Q10

(RMm)

2

3

4

5

6

7

8

9

10

11

12(%)


Gross NPL (% - RHS)


Chart 24 : Gross NPL Ratio: Pers onal Use Chart 25 : Gross NPL Ratio: Credit Card

1000

1100

1200

1300

1400

1500

1600

1700

1800

1900

2Q06

3Q06

4Q06

1Q07

2Q07

3Q07

4Q07

1Q08

2Q08

3Q08

4Q08

1Q09

2Q09

3Q09

4Q09

1Q10

2Q10

(RMm)

3

4

5

6

7

8

9

(%)Gross NPL (RMm - LHS)

Gross NPL (% - RHS)

500

550

600

650

700

750

800

2Q06

3Q06

4Q06

1Q07

2Q07

3Q07

4Q07

1Q08

2Q08

3Q08

4Q08

1Q09

2Q09

3Q09

4Q09

1Q10

2Q10

(RMm)

2.0

2.5

3.0

3.5

4.0

(%)Gross NPL (RMm - LHS)

Gross NPL (% - RHS)


Chart 26 : Gross NPL Ratio: Working Capital Chart 27 : Gross NPL Ratio: Purchase of Securities

10000

11000

12000

13000

14000

15000

16000

2Q06

3Q06

4Q06

1Q07

2Q07

3Q07

4Q07

1Q08

2Q08

3Q08

4Q08

1Q09

2Q09

3Q09

4Q09

1Q10

2Q10

(RMm)

5

6

7

8

9

10(%)


Gross NPL (% - RHS)

450

950

1450

1950

2Q06

3Q06

4Q06

1Q07

2Q07

3Q07

4Q07

1Q08

2Q08

3Q08

4Q08

1Q09

2Q09

3Q09

4Q09

1Q10

2Q10

(RMm)

1

2

3

4

5

6

7

8

9

10

11(%)


Gross NPL (% - RHS)

Source: BNM

Industry Deposit Growth And LD Ratio

Jun 10 deposits inched up slightly mom ... Absolute amount of deposits as at end-Jun 10 increased by

RM19bn mom (May 10: RM3.2bn) or +9% yoy (May 10: +RM3.2bn mom or +9% yoy) with the increase

reflecting higher placements by banking institutions in the form of NIDs and short-term money market deposits

as well as higher FX deposits and higher Islamic banking system deposits by business enterprises.


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leading to LD ratio rising further. Given that mom loan growth outpaced deposit growth, Jun 10 loan-

deposit (LD) ratio increased to 81.4% (May 10: 80.5%). As compared to historical LD ratio levels, the systems

liquidity remains ample.

LD ratios of individual banks generally healthy. Generally, apart from AMMB and EON Cap, the LD ratio for

the individual banks appears to be at comfortable levels. While AMMB has the highest LD ratio among the banks,

we do note that, historically, this ratio tends to be >100% mark. As for EON Cap, 1Q deposit growth stood at a

healthy annualised rate of 13.2% thanks to innovative deposit campaigns and this should help support loan

growth, if sustained.

Chart 28 : Annual Deposit Growth Chart 29 : LD Ratio

400

500

600

700

800

900

1000

1100

2002 2003 2004 2005 2006 2007 2008 2009 2010

(RMbn)

0

5

10

15

20

25(%)Deposit (RMbn - LHS) Deposits Growth (% yoy - RHS)

70%

75%

80%

85%

90%

95%

100%

105%

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010


Table 3 : Loan/Deposit Ratio As At End-Mar 10

Maybank CIMB Grp PBB* RHB AMMB HLB EONC Affin AFG

% % % % % % % % %

LD Ratio 84.8 80.6 83.2 82.6 94.0 54.2 93.8 80.5 87.4

*As at end-Jun 10

Source : Companies

Industry Average Lending Rate (ALR)

In terest spread down as interbank rates rose further. Commercial banks ALR in Jun 10 trended higher to

5.05% (vs. 5.01% in May 10) as interest-rate sensitive assets continue to be repriced following Mays OPR

increase. However, the overnight interbank rate also trended higher to 2.75% (May: 2.68%) possibly in

anticipation of another 25bps hike in OPR and as a result, interest spread decreased slightly to 2.3% (May 10:

2.33%).

Chart 20: Industry ALR & Spread Chart 21 : Indu stry Capital Ratios

4.5

5.0

5.5

6.0

6.5

7.0

7.5

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

(%)

2.0

2.5

3.0

3.5

4.0

4.5

(%)Avg. Lending Rate (LHS)

Interest Spreads (RHS)

10.0

11.0

12.0

13.0

14.0

15.0

16.0

9298 99 00 01 02 03 04 05 06 07 08 09 10

(%)

7.0

7.5

8.0

8.5

9.0

9.5

10.0

10.5

11.0

11.5

12.0

12.5

13.0

13.514.0

(%)

RWCAR (LHS) Core capita l r atio (RHS)



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Industry Capital Ratios

Capital ratios broadly stable. Industry capital ratios remained broadly stable mom and healthy with the core

capital ratio and RWCR at 12.9% (May 10: 13.1%) and 14.8% (May 10: 15%) respectively.

RISKS

The risks include: 1) slower-than-expected loan growth; 2) deterioration in asset quality; and 3) changes inmarket conditions that may adversely affect investment portfolio.

CHANGES TO FORECASTS

No changes to our earnings forecasts for the banks.

VALUATIONS AND RECOMMENDATION

Banking sector the best proxy to the economic recovery. In our view, the banking sector represents the

best proxy to the economic recovery and we continue to believe that the sector will help take the lead in lifting

the market to higher grounds. We expect this to be underpinned by factors such as: 1) earnings growth gaining

momentum; 2) valuations remain decent relative to the market and historical levels; and 3) relatively lowforeign shareholding levels.

Maintain Overweight on the sector. Overall, we maintain our Overweight stance on the sector. For an

exposure to the big cap banking stocks, we like Maybank, CIMB Group, Public Bank and AMMB while AFG and

Affin are our picks within the smaller market capitalisation segment. HL Bank and EON Cap are both rated

Market Perform.

Table 4 : Valuation Bases

Company

Fair Value

(RM/ share) Valuation Methodology

Affin 3.55 12x CY11 EPS, 3x discount to reflect its smaller market capitalisation

AFG 3.40 13x CY11 EPS, 2x discount to reflect its smaller market capitalisation

AMMB 6.60 Benchmark 15x CY11 EPS

CIMB Group 8.40 Benchmark 15x CY11 EPS

EON Cap 7.92 13x CY11 EPS, 2x discount to reflect its smaller market capitalisation

HL Bank 9.20 Benchmark 15x CY11 EPS

Maybank 9.66 Benchmark 15x CY11 EPS

Public 13.75 Benchmark 15x CY11 EPS

Source: RHBRI


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Table 5 : Industry NPLs

NPLs (3-month recognition, inclusive of II S) NPLs (3-month recognition, excluding II S)

Month Gross NPLs Net NPLs Gross Ratio Net Ratio Gross NPLs Net NPLs Gross Ratio Net Ratio

(RMm) (RMm) (%) (%) (RMm) (RMm) (%) (%)

Jul-06 53,483 30,247 9.2 5.4 46,212.0 30,247.0 8.0 5.4

Aug-06 53,338 29,617 9.1 5.3 45,933.0 29,617.0 7.9 5.3

Sep-06 52,219 28,557 8.9 5.1 44,943.0 28,557.0 7.7 5.1Oct-06 52,010 28,538 8.8 5.0 44,810.0 28,538.0 7.7 5.0

Nov-06 51,743 28,110 8.7 4.9 44,556.0 28,110.0 7.6 4.9

Dec-06 50,391 27,360 8.5 4.8 43,394.0 27,360.0 7.4 4.8

Jan-07 50,276 26,476 8.4 4.6 43,212.0 26,476.0 7.3 4.6

Feb-07 50,111 26,824 8.4 4.7 43,071.0 26,824.0 7.3 4.7

Mar-07 49,631 25,645 8.3 4.4 42,645.0 25,645.0 7.2 4.4

Apr-07 49,303 25,174 8.2 4.3 42,325.0 25,174.0 7.1 4.3

May-07 49,086 24,871 8.1 4.3 42,189.0 24,871.0 7.0 4.3

Jun-07 46,641 23,969 7.6 4.1 40,200.0 23,969.0 6.6 4.1

Jul-07 46,505 23,412 7.4 3.8 40,022.0 23,412.0 6.4 3.8

Aug-07 45,583 22,389 7.2 3.6 39,116.0 22,389.0 6.2 3.6

Sep-07 44,074 21,676 6.8 3.5 37,980.0 21,676.0 5.9 3.5

Oct-07 43,912 21,349 6.8 3.4 37,772.0 21,349.0 5.9 3.4

Nov-07 43,288 20,666 6.6 3.3 37,127.0 20,666.0 5.7 3.3

Dec-07 41,763 20,011 6.5 3.2 35,732.0 20,011.0 5.6 3.2

Jan-08 41,524 19,648 6.4 3.1 35,445.0 19,648.0 5.5 3.1

Feb-08 41,751 20,189 6.4 3.2 35,628.0 20,189.0 5.5 3.2

Mar-08 40,440 19,028 6.1 3.0 34,722.0 19,028.0 5.3 3.0

Apr-08 39,530 18,482 5.9 2.9 33,823.3 18,482.3 5.1 2.9

May-08 37,871 18,414 5.6 2.8 32,497.0 18,414.0 4.9 2.8

Jun-08 36,977 17,550 5.4 2.6 31,725.0 17,550.0 4.7 2.6

Jul-08 36,712 17,091 5.3 2.5 31,430.0 17,091.0 4.6 2.5

Aug-08 36,815 17,187 5.2 2.5 31,436.0 17,187.0 4.5 2.5

Sep-08 36,059 16,660 5.1 2.4 30,683.0 16,660.0 4.3 2.4

Oct-08 36,330 16,878 5.1 2.4 30,973.0 16,878.0 4.4 2.4

Nov-08 35,886 16,780 5.0 2.4 30,611.0 16,780.0 4.3 2.4

Dec-08 34,983 15,889 4.8 2.2 29,803.0 15,889.0 4.1 2.2

Jan-09 34,856 15,811 4.8 2.2 29,701.0 15,811.0 4.1 2.2

Feb-09 34,882 15,864 4.8 2.2 29,717.0 15,864.0 4.1 2.2

Mar-09 33,592 16,033 4.6 2.2 28,873.0 16,033.0 4.0 2.2

Apr-09 33,706 16,076 4.6 2.2 28,975.0 16,076.0 4.0 2.2

May-09 33,991 15,934 4.6 2.2 29,162.0 15,934.0 4.0 2.2

Jun-09 33,312 15,791 4.5 2.2 28,653.0 15,791.0 3.9 2.2

Jul-09 33,180 15,057 4.4 2.1 28,510.0 15,057.0 3.8 2.1

Aug-09 33,579 15,541 4.4 2.1 28,824.0 15,541.0 3.8 2.1

Sep-09 33,890 15,949 4.4 2.1 29,130.0 15,949.0 3.8 2.1

Oct-09 33,488 15,606 4.4 2.1 28,786.0 15,606.0 3.8 2.1

Nov-09 29,736 14,538 3.8 1.9 25,841.0 14,538.0 3.4 1.9

Dec-09 28,693 13,788 3.7 1.8 24,934.0 13,788.0 3.2 1.8

Jan-10* 28,222 13,203 3.6 1.7 25,949.0 13,203.0 3.3 1.7

Feb-10 29,445 14,796 3.7 1.9 27,395.0 14,796.0 3.4 1.9Mar-10 29,160 15,367 3.6 1.9 27,410.0 15,367.0 3.4 1.9

Apr-10 29,272 17,040 3.6 2.1 27,980.0 17,040.0 3.5 2.1

May-10 30,060 18,100 3.7 2.2 28,862.0 18,100.0 3.5 2.2

Jun-10 29,973 17,718 3.6 2.2 28,874.0 17,718.0 3.5 2.2

*Beginning Jan 2010, loans are reported based on FRS139. The adoption of FRS139 is based on the FYE of the banks.

Source : BNM


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Table 6 : Key Earnings Data

Maybank CIMB Grp PBB - L AMMB HLB EONC Affin AFG

Pre-provision Profit (RM m)

FY09a 4,762 4,875 4,000 1,986 1,189 585 670 377

FY10F 6,276 5,862 4,465 2,176 1,205 673 720 621

FY11F 6,713 6,648 4,871 2,375 1,261 728 752 683

Net Profit (RMm)

FY09a 2,181 2,807 2,517 1,009 905 341 372 301

FY10F 3,634 3,373 2,872 1,201 893 373 411 377

FY11F 4,293 3,977 3,212 1,377 894 422 442 412

Net Profit Growth (% )

FY09a (25.5) 43.8 (2.5) 17.2 22.0 155.0 27.0 31.6

FY10F 66.7 20.2 14.1 19.1 (1.4) 9.4 10.5 25.2

FY11F 18.1 17.9 11.8 14.6 0.2 13.2 7.6 9.1

Adjusted Net Interest Margins (% )

FY09a 2.79 3.43 2.38 3.11 2.04 2.65 2.72 2.82

FY10F 2.85 3.42 2.36 2.98 1.98 2.69 2.67 2.83

FY11F 2.83 3.40 2.35 3.00 1.96 2.63 2.62 2.85

Non-Interest Income As % of Total Income

FY09a 30.8 35.1 22.6 31.3 26.0 19.9 23.9 7.4

FY10F 35.3 33.6 22.1 33.8 27.1 20.2 23.6 23.6

FY11F 34.8 33.3 21.7 33.8 26.8 20.5 23.7 23.7

Cost-to-Income Ratio (% )

FY09a 53.9 54.0 34.5 49.0 42.4 58.9 47.4 59.5

FY10F 50.2 50.6 33.4 47.8 43.3 57.4 46.9 47.0

FY11F 50.0 48.7 32.8 47.0 43.4 56.6 47.0 45.9

Loan-to-Deposit Ratio (% )

FY09a 87.4 79.5 79.2 94.0 51.5 92.9 78.7 87.4FY10F 86.7 76.3 82.1 93.3 50.5 93.1 77.5 90.9

FY11F 86.8 75.9 83.6 92.6 50.5 93.3 76.8 94.5

Loan Growth (% )

FY09a 13.5 20.9 18.8 12.0 0.8 8.3 12.9 10.0

FY10F 8.0 10.4 14.0 6.4 5.0 10.2 8.3 9.2

FY11F 7.0 9.4 10.0 7.2 7.1 9.2 8.1 9.1

Gross NPL Ratio (% )

FY09a 3.5 5.0 1.0 2.8 2.2 3.8 3.7 3.8

FY10F 3.2 4.5 0.9 2.5 2.2 3.3 2.9 3.5

FY11F 3.0 4.0 0.9 2.2 2.1 2.8 2.6 3.3

Net NPL Ratio (%)

FY09a 1.5 1.8 0.8 1.5 1.3 2.3 2.2 1.8

FY10F 1.4 1.6 0.8 1.5 1.3 2.0 1.7 1.7

FY11F 1.3 1.4 0.7 1.4 1.3 1.6 1.6 1.6

Loan Loss Cover (% )

FY09a 112.9 90.8 172.4 99.5 109.1 78.5 81.5 94.4

FY10F 117.0 93.4 181.0 102.9 110.2 85.6 91.9 94.9

FY11F 121.1 96.8 191.6 107.8 112.4 94.5 96.7 98.2

RWCAR (%)

FY09a 15.0 14.4 14.2 15.8 16.5 14.4 13.8 15.7

FY10F 15.6 13.6 14.5 16.1 17.3 14.3 13.3 14.7

FY11F 15.8 13.3 14.3 16.3 17.8 14.2 12.8 15.1Source : RHBRI for companies with FYE Mar, FY09, FY10F and FY11F refers to FY10, FY11 and FY12 respectively


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Table 7 : Valuation Summary

Maybank CIMB Grp PBB - L AMMB HLB EONC Affin AFG

Bloomberg Ticker MAY MK CIMB MK PBK MK AMM MK HLBK MK EON MK AHB MK AFG MK

Recommendation OP OP OP OP MP MP OP OP

EPS (sen)

FY09a 37.8 39.8 73.3 34.7 62.5 49.2 24.9 19.5

FY10F 51.3 47.8 82.0 39.9 59.6 53.8 27.5 24.4

FY11F 60.7 56.3 91.7 45.7 59.7 60.9 29.6 26.6

EPS growth (% y-o-y)

FY09a (29.0) 37.5 (4.7) 9.8 22.1 155.0 27.0 30.6

FY10F 35.7 20.2 11.8 14.8 (4.7) 9.4 10.5 25.2

FY11F 18.1 17.9 11.8 14.6 0.2 13.2 7.6 9.1

PER (x)

FY09a 20.5 18.6 16.6 14.8 14.4 14.1 12.3 15.0

FY10F 15.1 15.5 14.8 12.9 15.1 12.9 11.1 12.0

FY11F 12.8 13.1 13.3 11.3 15.1 11.4 10.3 11.0

BVPS (RM/ s)

FY09a 3.52 2.88 3.12 3.20 3.63 5.13 3.17 1.90

FY10F 3.81 3.07 3.60 3.52 4.02 5.59 3.24 2.10

FY11F 4.16 3.39 4.04 3.90 4.41 6.12 3.31 2.32

P / BV (x)

FY09a 2.2 2.6 3.9 1.6 2.5 1.4 1.0 1.5

FY10F 2.0 2.4 3.4 1.5 2.2 1.2 0.9 1.4

FY11F 1.9 2.2 3.0 1.3 2.0 1.1 0.9 1.3

ROE (%)

FY09a 9.9 15.0 24.5 11.6 16.7 10.1 8.1 10.6

FY10F 14.0 16.1 24.2 11.9 14.8 10.0 8.6 12.2

FY11F 15.2 17.4 23.8 12.3 13.4 10.4 9.0 12.0

ROE / PBV (x)

FY09a 4.5 5.8 6.3 7.2 6.7 7.4 8.4 6.9

FY10F 6.9 6.7 7.2 8.1 6.6 8.1 9.1 8.8

FY11F 8.2 8.0 7.9 9.3 6.6 9.2 9.8 9.6

ROA (%)

FY09a 0.2 1.3 1.2 1.1 1.2 0.8 1.0 1.0

FY10F 1.1 1.3 1.3 1.2 1.1 0.8 1.0 1.2

FY11F 1.2 1.4 1.3 1.3 1.0 0.8 1.0 1.2

Net DPS (sen)

FY09a 6.0 9.3 41.3 9.4 18.0 0.0 6.4 6.4

FY10F 21.8 9.3 45.0 14.0 18.0 10.0 6.4 6.4

FY11F 26.3 9.3 48.8 16.0 18.0 10.0 6.4 6.4

Net dividend yield (% )FY09a 0.8 1.3 3.4 1.8 2.0 0.0 2.1 2.2

FY10F 2.8 1.3 3.7 2.7 2.0 1.4 2.1 2.2

FY11F 3.4 1.3 4.0 3.1 2.0 1.4 2.1 2.2

For companies with FYE Mar, FY09, FY10F and FY11F refers to FY10, FY11 and FY12 respectively

Source : RHBRI


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IMP ORTANT DISCLOSURES

This report has been prepared by RHB Research Institute Sdn Bhd (RHBRI) and is for private circulation only to clients of RHBRI and RHB Investment BankBerhad (previously known as RHB Sakura Merchant Bankers Berhad). It is for distribution only under such circumstances as may be permitted by applicable law.The opinions and information contained herein are based on generally available data believed to be reliable and are subject to change without notice, and maydiffer or be contrary to opinions expressed by other business units within the RHB Group as a result of using different assumptions and criteria. This report is notto be construed as an offer, invitation or solicitation to buy or sell the securities covered herein. RHBRI does not warrant the accuracy of anything stated hereinin any manner whatsoever and no reliance upon such statement by anyone shall give rise to any claim whatsoever against RHBRI. RHBRI and/or its associatedpersons may from time to time have an interest in the securities mentioned by this report.

This report does not provide individually tailored investment advice. It has been prepared without regard to the individual financial circumstances and objectivesof persons who receive it. The securities discussed in this report may not be suitable for all investors. RHBRI recommends that investors independently evaluateparticular investments and strategies, and encourages investors to seek the advice of a financial adviser. The appropriateness of a particular investment orstrategy will depend on an investors individual circumstances and objectives. Neither RHBRI, RHB Group nor any of its affiliates, employees or agents acceptsany liability for any loss or damage arising out of the use of all or any part of this report.

RHBRI and the Connected Persons (the RHB Group) are engaged in securities trading, securities brokerage, banking and financing activities as well as providinginvestment banking and financial advisory services. In the ordinary course of its trading, brokerage, banking and financing activities, any member of the RHBGroup may at any time hold positions, and may trade or otherwise effect transactions, for its own account or the accounts of customers, in debt or equitysecurities or loans of any company that may be involved in this transaction.

Connected Persons means any holding company of RHBRI, the subsidiaries and subsidiary undertaking of such a holding company and the respective directors,officers, employees and agents of each of them. Investors should assume that the Connected Persons are seeking or will seek investment banking or otherservices from the companies in which the securities have been discussed/covered by RHBRI in this report or in RHBRIs previous reports.

This report has been prepared by the research personnel of RHBRI. Facts and views presented in this report have not been reviewed by, and may not reflectinformation known to, professionals in other business areas of the Connected Persons, including investment banking personnel.

The research analysts, economists or research associates principally responsible for the preparation of this research report have received compensation basedupon various factors, including quality of research, investor client feedback, stock picking, competitive factors and firm revenues.

The recommendation framework for stocks and sectors are as follows : -

Stock Ratings

Outperform = The stock return is expected to exceed the KLCI benchmark by greater than five percentage points over the next 6-12 months.

Trading Buy = Short-term positive development on the stock that could lead to a re-rating in the share price and translate into an absolute return of 15% ormore over a period of three months, but fundamentals are not strong enough to warrant an Outperform call. It is generally for investors who are willing to takeon higher risks.

Market Perform = The stock return is expected to be in line with the KLCI benchmark (+/- five percentage points) over the next 6-12 months.

Underperform = The stock return is expected to underperform the KLCI benchmark by more than five percentage points over the next 6-12 months.

Chart 22: Affin Technical View Poin t

Affin began its uptrend since last Mar, when the 10-

day SMA cut above the 40-day SMA to trigger a

medium-term bullish outlook on the chart.

The uptrend lasted for 13 months until it reached a

high of RM3.29 in Apr 2010.

The stock subsequently retreated and fell to below

the RM3.08 significant level.

Although it has penetrated the RM3.08 level on few

occasions in the past few months, the stock has

never sustained its position at above the threshold.

Given the flat closing at RM3.05 on last Friday,

added with the marginal cut of the 10-day SMA to

below the 40-day SMA, the stock is likely to

continue its sideways drift at below the RM3.08

level in the near term, in our view.

As the momentum indicators are still showing the

mixed reading, we do not expect a rechallenge of

RM3.08 anytime soon.

In fact, on increased selling momentum, the stock

could fall further towards the key support level at

RM2.70, if it records more negative candles in the

near term.


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Industry/Sector Ratings

Overweight = Industry expected to outperform the KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Neutral = Industry expected to perform in line with the KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Underweight = Industry expected to underperform the KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

RHBRI is a participant of the CMDF-Bursa Research Scheme and will receive compensation for the participation. Additional information on recommendedsecurities, subject to the duties of confidentiality, will be made available upon request.

This report may not be reproduced or redistributed, in whole or in part, without the written permission of RHBRI and RHBRI accepts no liability whatsoever forthe actions of third parties in this respect.

banking sector update : jun ‘10 system data – yoy loan growth at a high - 02/08/2010

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