Banking Sector Update

• Results Improved - Generally, some improvement in the NIM during the quarter due to the re-pricing of average lending rate (ALR) vis-à-vis FD rates. Most banking groups were able to grow their earnings via lower operating expenses (or cost-to-income ratio) and loan loss provisions. During the quarter, downgraded PBBANK to a HOLD from a BUY as the stock is fast approaching our target price of RM7.00. At the same time, upgraded MAYBANK to a BUY from a HOLD with a revised target price of RM11.80.
• Loan Growth - Is Weakening. The YoY growth rate of total loans applied had dipped into the negative growth since March06. The divergence trend between the growth of loan applied and total loan growth is worrying and we reckon that the growth rate of total loans
  should taper off in the next few months.
• Asset quality continues to improve. - The 3-month gross NPLs declined by about 4.8% YoY while the 3-month NPL dipped 125bps to 5.40% from a year ago. Loan loss coverage ratio trended higher to 48.2%, a multi-year high. We believe the underlying up-trend in loanloss coverage ratio coupled with the lower NPLs should continue to support lower provisioning for banks, hence boosting their bottom lines and CARs to a certain extent.

Full Research: OSK Securities