Malaysia Industry Focus

Malaysian Banks
Refer to important disclosures at the end of this report

DBS Group Research . Equity 4 Feb 2019

A solid close to a challenging year

KLCI : 1,683.53
 Loans growth of 5.6% in 2018 driven by residential
Analyst
mortgages and working capital-related loans CHIN Jin Han, CFA +60 326043974
chinjinhan@alliancedbs.com
 Asset quality still healthy, retail GIL ratios benign

 We expect loans growth of 5% in 2019, to be retail-

driven again, while cautious on business loans demand

 Top picks: AMM and BIMB for small caps, HLBK and STOCKS
RHBBANK for large caps 12-mth
Price Mkt Cap Target Price Performance (%)
Loans growth still retail-driven. Loans growth in December RM US$m RM 3 mth 12 mth Rating

2018 was respectable at 5.6% y-o-y, slightly higher than our Affin Bank 2.21 1,049 2.20 N.A N.A HOLD
5% expectation. Residential mortgages was the main driver of AMMB Holdings 4.50 3,313 4.95 N.A N.A BUY
retail loans growth, which was bolstered by a pick-up in loans BIMB Holdings 3.75 1,551 5.10 N.A N.A BUY
for personal use and purchase of securities. Working capital- BerhadGroup
CIMB 5.62 13,130 6.10 N.A N.A HOLD
Holdings
Hong Leong Bank 20.64 10,314 23.10 N.A N.A BUY
related loans led business loans growth, though this had Maybank 9.54 25,717 10.10 N.A N.A BUY
begun to taper in December from repayments. Asset quality Public Bank 24.78 23,499 25.30 N.A N.A HOLD
remained healthy throughout the year, with benign retail gross RHB Bank 5.43 5,319 6.30 N.A N.A BUY
impaired loans (GIL) ratios though some banks reported an Source: AllianceDBS, Bloomberg Finance L.P.
uptick in corporate loan GILs. Meanwhile, deposits posted Closing price as of 31 Jan 2019
strong growth, largely from fixed deposits; the industry’s
System loans growth trend
CASA ratio fell by around 2ppts y-o-y. 18 %
More of the same in 2019. We expect measured loans 16

growth in 2019 of 5%, given slower growth in loans 14

applications and approvals through 2018 (+2% and 5% 12

respectively) compared to the previous year (+5% and +10%). 10

Retail loans, notably residential mortgages which are still 8

growing at around 8% (albeit moderating), will still support 6

the industry. Meanwhile, early indications seem to point 4

towards a still cautious stance towards corporate loans 2

0
demand. We expect the smaller banks to display better than
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industry numbers ahead given their small bases and targeted Retail Business Total loan

business strategies.
BUY AMM, BIMB, HLBK and RHBBANK. We have pivoted Source: Bank Negara Malaysia, AllianceDBS
towards the smaller banks for our top picks, mainly AMMB System loan applications trend
25 %
Holdings (AMM) and BIMB Holdings (BIMB). This is premised
on expectations that they would outpace the industry in terms 20

of earnings growth, and affordable valuations. For the larger 15

cap banks, we like RHB Bank (RHBBANK) for its unjustifiably 10

low valuations against an improving earnings profile, as well as
5
Hong Leong Bank (HLBK) for its steady earnings delivery and
robust asset quality. Catalysts for the sector would be recovery 0

in non-interest income arising from stronger capital markets -5

and better corporate loans demand as macro uncertainties -10

2011

2012

2013

2014

2015

2016

2017

2018

clear up.
Retail Business Total

Source: Bank Negara Malaysia, AllianceDBS

ed: JS/ sa: WMT, CW, CS

Industry Focus
Malaysian Banks

Loans growth still driven by retail

No real surprises in December. The banking industry closed System loans growth
2018 with loans growth of 5.6%, slightly higher than our 5% 18 %

expectation. Retail loans were the primary contributor to overall 16

expansion, accounting for more than 50% of the RM90b y-o-y 14

increase in outstanding loans. Business loans, which had been 12

recording steady improvement since hitting a more than 10-year 10

low in November 2017, lost some steam in December 2018. 8

Retail loans growth still strong. Retail loans propped up the 4

sector in 2018, growing by between 5% and 6% mainly from 2

mortgages. Loans for the purchase of securities and personal 0

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use saw an uptick in growth since mid-2018. We believe this is
Retail Business Total loan
likely due to a proliferation of unit trust loans and margin
financing, as well as resilient private consumption. Separately, Source: Bank Negara Malaysia, AllianceDBS
auto loans growth, which saw four months of expansion
following increased demand during the GST-free period, has System retail loans growth
35 %
swung to negative growth. While mortgage loans growth has
yet to see the ill effects of the property market downturn, the 30

25
growth pace has been slowing over the past 3 years. We think
20
near term mortgage growth is anticipated to remain relatively
15
high, but the effects of the negative property market will kick in
10
eventually.
5

0
Business loans picked up but beginning to taper. Business loans
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-5
had been recording stronger growth since reaching a low of
-10
2.1% y-o-y in November 2017 but this tapered in December Purchase of residential property Purchase of securities
2018, weighed by heavy corporate repayments during the Purchase of passenger transport vehicles Personal use

month. Working capital-related loans was the key driver behind

the better growth over the year. Commercial property-related Source: Bank Negara Malaysia, AllianceDBS
loans, which recorded its lowest level of growth in the past 8
years, is not showing any outward signs of recovery given the System business loans growth
35 %
prolonged weakness in the retail and office property sectors.
Given the less optimistic view on the economy and ongoing 30

macro uncertainties from the US-China trade war, corporate 25

loans are likely to be muted in 2019. 20

15
Slower loan applications and approvals. Loan applications only
10
grew by 2.2% in 2018 (2017: +5.1%), as significantly weaker
retail loan applications (+1.7% from +10.4% from a year ago) 5

were only partially offset by better business loan applications 0

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(+2.7% from -0.8% a year ago). Approvals was also slower,

growing at 4.6% in 2018 compared to the previous year
Working capital Construction Purchase of non-residential property
(+10.2%). There may be a boost from mortgages in 1H19 as a
result of the Malaysian government’s efforts to reduce the Source: Bank Negara Malaysia, AllianceDBS
overhang in the property sector but all in, we do not expect
2019 to be a particularly exciting year for loans growth – we
expect a 5% run rate for the year.

Page 2
Industry Focus
Malaysian Banks

System loan applications trend Asset quality was healthy in 2018. The industry’s gross
25 % impaired loans (GIL) ratio was healthy in 2018, bolstered by
relatively benign retail GIL ratios of around 1%. While
20
business loan GILs seem to be declining, we have observed an
15 uptick in some of the listed banks’ GIL ratios as a result of
lumpy corporate accounts, such as Malayan Banking Group
10
and Affin Bank. With the strong push by some banks into the
5
SME segment, there may be some impact to asset quality if
the economy deteriorates significantly.
0

System GIL ratios (LHS) and y-o-y GIL movement (RHS)

-5
4.0 % % 15

-10
3.5 10
2011

2012

2013

2014

2015

2016

2017

2018

3.0 5
Retail Business Total
2.5 0
Source: Bank Negara Malaysia, AllianceDBS
2.0 (5)

System loan approvals trend 1.5 (10)

25.0 %
1.0 (15)

20.0
0.5 (20)
15.0
0.0 (25)
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10.0

5.0 Retail y-o-y (RHS) Business y-o-y (RHS) Retail (LHS) Business (LHS) Total (LHS)

0.0 Source: Bank Negara Malaysia, AllianceDBS

-5.0

-10.0
Declining CASA ratio. Deposit growth has been robust
especially in 4Q18, growing by 8% y-o-y in December 2018.
-15.0
Most of the growth was centred on fixed deposits, which
-20.0
expanded by 10% largely due to ongoing macroeconomic
2011

2012

2013

2014

2015

2016

2017

2018

uncertainties and aggressive fixed deposit promotions on

Retail Business Total offer. Current Account and Savings Accounts (CASA)
Source: Bank Negara Malaysia, AllianceDBS experienced much weaker growth in 2H18, translating into a
lower CASA ratio (as a proportion of total deposits) of 26%
System loan approval rates from 28% a year ago. Loan-to-deposits ratio was 87%
56.0 %
against 89% in December 2017.

54.0
System deposit growth y-o-y
52.0 18.0

16.0
50.0
14.0

48.0 12.0

10.0
46.0
8.0

44.0 6.0

4.0
42.0
2.0

40.0 0.0
Jul-10

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Jan-18
2011

2012

2013

2014

2015

2016

2017

2018

(2.0)

(4.0)
Retail Business Total Total Deposits Fixed Deposits CASA

Source: Bank Negara Malaysia, AllianceDBS Source: Bank Negara Malaysia, AllianceDBS

Page 3
Industry Focus
Malaysian Banks

Valuation and recommendation

Prefer smaller banks for unjustifiably low valuations relative to
earnings potential. We expect the smaller banks to outpace
their larger counterparts in terms of earnings growth.
Specifically, we like AMM for the positive results from its Top
4 business strategy and BET300 initiative, i.e. above average
loans growth, well controlled overheads. Despite net interest
margin (NIM) compression in the latest quarter, we think the
shift in asset mix towards higher yielding loans (e.g. SME
loans, credit card receivables) over the medium term should
help to improve yields. Separately, we also like BIMB for its
resilient earnings profile, underpinned by a robust asset mix
which should help to maintain NIM, above industry loans
growth and strong support from its subsidiary Syarikat Takaful
Malaysia Keluarga Berhad. Both AMM and BIMB remain
undervalued by the market, in our view.
RHBBANK and HLBK are our large cap picks. We are more
selective on the larger banks, and have RHBBANK and HLBK
as our top picks. RHBBANK’s earnings profile is on an
improving trend given positive loans traction from its FIT22
initiative in targeted segments (SME, mass affluent and
affluent) and NIM resiliency compared to its peers. The
group’s net credit costs are also normalising compared to the
past 2 years of high provisions (40-55bps in net credit costs).
RHBBANK is trading at an inexpensive 0.8x FY19F BV. We also
like HLBK for its steady earnings delivery, strong asset quality
and well managed cost efficiency, which is deserving of its
premium valuations.

Malaysian Banks peer comparison

Net
Market Target div
Banking Group cap Price Price Rating PE (x) CAGR PBV (x) ROE (%) (%)
FY17 FY18 ^
(US$bn) (RM/s) (RM/s) A A FY19F (%) CY17A CY18F CY19F FY18F FY18F

Affin Bank 1,260 2.21 2.20 HOLD 10.2x 9.5x 8.3x 11.3 0.5x 0.5x 0.5x 5.3% 1.9%
AMMB 3,725 4.50 4.95 BUY 11.5x 10.6x 9.5x 9.9 0.8x 0.8x 0.8x 8.1% 3.8%
CIMB Group 17,778 5.62 6.10 HOLD 14.4x 13.9x 13.5x 3.1 1.3x 1.3x 1.3x 12.3% 3.7%
Hong Leong Bank 9,755 20.64 23.10 BUY 17.7x 15.8x 15.1x 8.1 1.8x 1.7x 1.7x 11.5% 2.5%
Maybank 28,575 9.54 10.10 BUY 14.7x 14.8x 13.8x 3.2 1.5x 1.5x 1.4x 10.1% 5.1%
Public Bank 21,877 24.78 25.30 HOLD 15.5x 15.5x 14.7x 2.6 2.3x 2.1x 1.9x 14.1% 2.9%
RHB Bank 5,593 5.43 6.30 BUY 11.2x 9.2x 8.7x 13.2 0.9x 0.9x 0.8x 9.9% 3.1%

Weighted average 14.7x 14.3x 13.5x 4.7 1.6x 1.5x 1.5x 11.5% 3.8%
Weighted average (ex-Public
Bank) 14.4x 13.9x 13.1x 5.3 1.4x 1.4x 1.3x 10.7% 4.0%
Simple average 13.5x 12.7x 11.8x 7.5 1.3x 1.2x 1.2x 10.5% 3.4%
Simple average (ex-Public Bank) 13.2x 12.3x 11.4x 8.2 1.2x 1.1x 1.1x 10.1% 3.5%

BIMB 1,802 3.75 5.10 BUY 9.8x 9.2x 8.6x 7.3 1.4x 1.3x 1.2x 14.4% 3.6%
^Refers to a 2-year EPS CAGR for CY17-19F
Source: Companies, Bloomberg Finance L.P., AllianceDBS, DBS Bank

Page 4
Industry Focus
Malaysian Banks

AllianceDBS recommendations are based an Absolute Total Return* Rating system, defined as follows:
STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame)
BUY (>15% total return over the next 12 months for small caps, >10% for large caps)
HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps)
FULLY VALUED (negative total return i.e. > -10% over the next 12 months)
SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)
Share price appreciation + dividends

Completed Date: 2 Feb 2019 23:41:06 (MYT)

Dissemination Date: 4 Feb 2019 08:09:30 (MYT)

Sources for all charts and tables are AllianceDBS unless otherwise specified.

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Page 5
Industry Focus
Malaysian Banks

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Page 6
Industry Focus
Malaysian Banks

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Page 7
Industry Focus
Malaysian Banks

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United Arab This report is provided by DBS Bank Ltd (Company Regn. No. 196800306E) which is an Exempt Financial Adviser as
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Industry Focus
Malaysian Banks

DBS Regional Research Offices

HONG KONG MALAYSIA SINGAPORE

DBS (Hong Kong) Ltd AllianceDBS Research Sdn Bhd
Contact: Carol Wu Contact: Wong Ming Tek (128540 U)
13th Floor One Island East, 19th Floor, Menara Multi-Purpose,
18 Westlands Road, Capital Square,
Quarry Bay, Hong Kong 8 Jalan Munshi Abdullah 50100
Tel: 852 3668 4181 Kuala Lumpur, Malaysia.
Fax: 852 2521 1812 Tel.: 603 2604 3333
e-mail: dbsvhk@dbs.com Fax: 603 2604 3921
e-mail: general@alliancedbs.com
DBS Bank Ltd
Contact: Janice Chua
12 Marina Boulevard,
Marina Bay Financial Centre Tower 3
Singapore 018982
Tel: 65 6878 8888
Fax: 65 65353 418
e-mail: equityresearch@dbs.com
Company Regn. No. 196800306E

THAILAND INDONESIA
DBS Vickers Securities (Thailand) Co Ltd PT DBS Vickers Sekuritas (Indonesia)
Contact: Chanpen Sirithanarattanakul Contact: Maynard Priajaya Arif
989 Siam Piwat Tower Building, DBS Bank Tower
9th, 14th-15th Floor Ciputra World 1, 32/F
Rama 1 Road, Pathumwan, Jl. Prof. Dr. Satrio Kav. 3-5
Bangkok Thailand 10330 Jakarta 12940, Indonesia
Tel. 66 2 857 7831 Tel: 62 21 3003 4900
Fax: 66 2 658 1269 Fax: 6221 3003 4943
e-mail: research@th.dbs.com e-mail: research@id.dbsvickers.com
Company Regn. No 0105539127012
Securities and Exchange Commission, Thailand

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