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Friday, February 5, 2016

Sector: Banking (Neutral)

M&A Securities released a research report yesterday and they believe the banking sector is bracing for a softer 2016.

Softer 2016 for the banking sector?

Loan growths are expected to decelerate to 8% in 2016. In contrast, the 2015's loan growth is at 8.4%. Two themes take central stage for 2016 in the banking sector according to M&A, lethargic loan growth and tight liquidity environment.

For the research team in M&A, they feel that improvement in asset quality and leaner operating cost could be the drivers to support the banking sector in 2016.
Top Picks in the sector: Maybank and BIMB Holdings.

A quick look at the December 2015 banking statistics shows us a few important summary:

  1. Loans growth ended at 8.4% yoy in December, similar to November. This was largely due to a fine performance in household segment, pushing the average loan growth in 2015 to hit the 9.1% mark.
  2. A red flag is raised as loan applications were even weaker in December with a -8.3% yoy in comparison to a -5.3% in November.
  3. Marginal improvement in loan approval rate, but continue to stay in the negative territory as banks tightened approval at the back of new restructures and reschedules measures by Bank Negara Malaysia (BNM).
M&A highlighted some of the banking sector challenges in the areas of flat loans growth, tight liquidity, margin compression, rising credit cost and challenging macroeconomic conditions which might continue to hurt the banking sector.

Banking sector is a NEUTRAL for 2016 according to M&A Securities.

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