Banking stocks decline after BNM data show weak loan growth

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KUALA LUMPUR (June 1): Banking and financial stocks took a dive in morning trades today following weak loan growth in April, according to statistics released by Bank Negara Malaysia (BNM) last Friday.

BNM data revealed loan growth had softened from 9.2% year-on-year (y-o-y) in March 2015 to 8.8% y-o-y in April 2015, following two months of acceleration.

At 10.25am today, RHB Capital Bhd (fundamental: 1.5; valuation: 2.4) lost 23 sen or 3% to RM7.47. The fifth top decliner saw trades of 157,600 shares. It had earlier fallen to a low of RM7.45.

Hong Leong Financial Group Bhd (fundamental: 2; valuation: 1.95) fell 16 sen or 1% to RM15.30. The seventh top decliner saw trades of 17,600 shares.

Public Bank Bhd (fundamental: 1.8; valuation: 0.9) also fell 16 sen or 0.9% to RM18.34. The eighth top decliner saw trades of some 1.2 million shares.

In a note, CIMB Investment Bank Research maintained its “underweight” rating for the sector predicated on a slowdown in loan growth, margin contraction and an upturn in credit costs.

“We advise investors to trim their positions in Malaysian banks,” CIMB IB research analyst Winson Ng wrote in a note today.

For the year, Ng forecast loan growth to hover at 8.5% to 9.5%.

He hopes that loan momentum would recover in 4Q15 when consumers and businesses adapt to the new goods and services tax regime, admitting loan growth would soften in the second and third quarters this year.

Meanwhile, Kenanga Research kept its “neutral” rating for the sector on the premise that there is no “re-rating catalyst in sight”.

The research house remained cautious as the sector faces structural and cyclical headwinds, citing muted loans growth, narrowing net interest margin, weak capital market activities and higher credit costs.

“In a nutshell, April produced a set of positives mixed in with some negatives,” Kenanga’s research team wrote in a note today.

(Note: The Edge Research's fundamental score reflects a company’s profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations.)