KUALA LUMPUR (Oct 1): Bank Negara Malaysia’s latest banking statistics foreshadow slowing loan growth as credit demand expansion weakened while loan approvals declined at a faster pace, analysts said.

Kenanga Investment Bank Bhd said the banking loan sector had shown “clear signs of slowing down”, while CIMB Investment Bank Bhd said “the trends do not bode well for loan growth in the coming months”.

Yesterday, Bank Negara said in its August monetary and financial developments report that loan applications grew 3.1% from a year earlier while approval rates fell 9%. Net financing, comprising banking system loans and private debt securities, rose 9.2%.

In July, applications rose 7% from a year earlier while approval rates declined 0.9%. Net financing rose 8.5%.

Today, Kenanga said in anticipation of slower loan growth, narrowing net interest margin, weak capital market activities and higher credit cost, the research firm maintained its “neutral” call on the banking sector and advocated a selective stock-picking strategy.

Kenanga said it had “outperform” recommendations for Malayan Banking Bhd (Maybank) and RHB Capital Bhd shares.

“We like Maybank for its superior yield offerings of ~6% while we see deep value for RHB Capital with its forward PBV at merely 0.8x compared to the industry’s forward PBV of 1.5x,” Kenanga said.

CIMB said the August loan application and approval numbers were dragged down by the slowdown in the working capital and property loan segments.

According to CIMB, property loan indicators declined by 6% to 29% during the month.

“We continue to rate Malaysian banks as an ‘underweight’, predicated on the concerns over an anticipated weakening in loan momentum, constant pressures on margins, and an expected uptick in credit costs.

“RHB Capital remains our top pick for the sector,” CIMB said.

(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.)