Weakness ahead. Loan disbursements, applications and approvals slowed in Apr, reflecting cautious sentiment. Loans growth was just 1.4% YTD, and 4.2% annualised. There was a slight uptick in absolute NPLs, implying stress in some loans segments. The poor 1Q09 GDP numbers suggest growing stress in system loans over the next few months. We remain cautious on banks’ profits, especially from 3Q09. 1.4% YTD loans growth. Banking loans (net of repayments) grew to RM736.5m in Apr ’09 (+0.4% MoM, +10.6% YoY) on expansion in both household (+0.7% MoM, +8.5% YoY) and business loans (-0.03% MoM, +9.2% YoY). Disbursements slowed (-6.6% MoM, -6.4% YoY) but repayments were relatively stable (+1.3% MoM, -2.8% YoY). YTD loans growth was +1.4% (4M2008: +3.4%), driven by household loans (+2.2%) while business loans’ growth was anemic (+0.4%). Forward indicators contracting. Loan applications and approvals fell YoY: -5.4% and -18.2%. The business segment saw loan applications and approvals down 24.2% and 35%, while the household segment continued to see growing appetite in loan applications but flattish loan approvals. On a MoM comparison, both indicators also showed contraction. Loan applications fell 1.4% while approvals slipped 0.8%. Absolute NPLs inched up. Absolute NPLs ticked-up by 0.34% MoM to RM33.7b (Mar ‘09: -3.7% MoM). However, Apr ‘09’s absolute NPLs were still lower than a year ago, by 14.7%. We suspect the rising NPLs came from the business segment, especially exporters. The net NPL ratio was unchanged at 2.24% due to the expanded loans base. Loan loss coverage (LLC) remained adequate at 88.5% (Mar ’09: 88.3%). Stay Underweight. The combined 1Q09 net profit of the six banking stocks we cover was down 2.1% QoQ, and a sharper 13.1% YoY, on lower treasury and FX income and higher loan loss provisions. We expect sector earnings to contract 10% YoY in 2009 and reiterate our concerns on asset and loan quality as the economy contracts over the next two quarters. Our analysis shows a 3-6 months interval from GDP trough to NPL peak. Banks are set to report weaker profits.

1. Equity Research
PP11072/03/2010 (023549)
Sector Update 28 May 2009
Apr ’09 statistics: Signs of weakness
Banking ahead. Underweight.
Underweight (unchanged) Weakness ahead. Loan disbursements, applications and approvals
slowed in Apr, reflecting cautious sentiment. Loans growth was just
1.4% YTD, and 4.2% annualised. There was a slight uptick in absolute
NPLs, implying stress in some loans segments. The poor 1Q09 GDP
numbers suggest growing stress in system loans over the next few
Wong Chew Hann, CA months. We remain cautious on banks’ profits, especially from 3Q09.
wchewh@maybank-ib.com 1.4% YTD loans growth. Banking loans (net of repayments) grew to
(603) 2297 8686 RM736.5m in Apr ’09 (+0.4% MoM, +10.6% YoY) on expansion in both
household (+0.7% MoM, +8.5% YoY) and business loans (-0.03%
MoM, +9.2% YoY). Disbursements slowed (-6.6% MoM, -6.4% YoY)
but repayments were relatively stable (+1.3% MoM, -2.8% YoY). YTD
loans growth was +1.4% (4M2008: +3.4%), driven by household loans
(+2.2%) while business loans’ growth was anemic (+0.4%).
Forward indicators contracting. Loan applications and approvals fell
YoY: -5.4% and -18.2%. The business segment saw loan applications
and approvals down 24.2% and 35%, while the household segment
continued to see growing appetite in loan applications but flattish loan
approvals. On a MoM comparison, both indicators also showed
contraction. Loan applications fell 1.4% while approvals slipped 0.8%.
Absolute NPLs inched up. Absolute NPLs ticked-up by 0.34% MoM to
RM33.7b (Mar ‘09: -3.7% MoM). However, Apr ‘09’s absolute NPLs
were still lower than a year ago, by 14.7%. We suspect the rising NPLs
came from the business segment, especially exporters. The net NPL
ratio was unchanged at 2.24% due to the expanded loans base. Loan
loss coverage (LLC) remained adequate at 88.5% (Mar ’09: 88.3%).
Stay Underweight. The combined 1Q09 net profit of the six banking
stocks we cover was down 2.1% QoQ, and a sharper 13.1% YoY, on
lower treasury and FX income and higher loan loss provisions. We
expect sector earnings to contract 10% YoY in 2009 and reiterate our
concerns on asset and loan quality as the economy contracts over the
next two quarters. Our analysis shows a 3-6 months interval from GDP
trough to NPL peak. Banks are set to report weaker profits.
Banking Sector – Peer Valuation Summary
Stock Rec Shr px Mkt cap TP PER (x) PER (x) P/B (x) P/B (x) ROAE ROAE Gross Gross
(%) (%) yld yld
(RM) (RMm) (RM) CY09E CY10E FY09E FY10E CY09E CY10E FY09E FY10E
Maybank * NR 5.20 36,804 NR 14.6 15.1 1.3 1.3 8.8 8.5 4.8 4.8
BCHB Sell 8.75 31,308 6.80 16.5 15.6 1.7 1.6 10.7 10.4 2.1 2.3
Public Bank Sell 8.75 30,904 7.60 13.0 12.6 2.8 2.5 22.3 20.7 5.7 6.3
RHB Cap Hold 4.22 9,088 4.30 10.7 10.0 1.1 1.0 10.5 10.4 3.8 4.0
AMMB Hold 3.32 9,040 3.30 11.8 11.4 1.2 1.1 10.0 9.2 2.4 2.7
EON Cap Sell 3.82 2,648 3.40 12.8 11.6 0.8 0.7 6.3 6.6 2.6 2.6
HL Bank * NR 5.60 8,849 NA 10.6 10.3 1.5 1.4 15.7 13.6 3.9 4.1
AFG * NR 2.20 3,406 NA 11.0 10.0 1.2 1.1 11.8 10.8 2.9 3.2
Affin Hldgs * NR 1.70 2,540 NA 11.1 9.8 0.5 0.5 5.5 5.7 2.9 2.8
Sector (weighted) 134,587 13.5 13.1 1.3 1.2
* Consensus; Source: Maybank-IB

2. Banking
Other indicators
Deposits declined, LDR up slightly. System deposits declined
marginally by 0.1% MoM (-6.2% YoY) to RM984.8b mainly due to
purchase of equity issued by the banks. As a result, system loan-to-
deposit ratio (LDR) rose slightly to 74.2% as at end-Apr ’09 (Mar ’09:
73.7%). This implies that the banks still have good capacity to lend.
Lending rates stable. There was no further OPR reduction at 26
May’s Monetary Policy Committee meeting after three cuts since Nov
’08 totalling 150 bps. As the OPR reached a historic low of 2%, the
same goes for lending and deposit rates. Commercial banks’ average
base lending rate (BLR) stayed at a historic low of 5.53% as at 15 May
’09 with a total 119 bps reduction since Nov ‘08. Average lending rate
(ALR) also touched a historic low of 5.13% as at end-Apr ’09.
Impact of OPR cuts on BLR and FD Rate
st nd rd
1 OPR cut 2 OPR cut 3 OPR cut
(24 Nov ’08) (21 Jan ’09) (24 Feb ’09)
OPR 3.25% (-25bps) 2.50% (-75bps) 2.00% (-50bps)
SRR 3.50% (-50bps) 2.00% (-150bps) 1.00% (-100bps)
BLR (average) 6.48% @ end-Dec 5.89% @ end-Feb 5.53% @ 15 Apr ’09
‘08 (-24bps) ’09 (-59bps) (-36bps)
FD rate:
1-month 3.00% (-10bps) 2.50% (-50bps) 2.00% (-50bps)
3-month 3.50% (-20bps) 3.00% (-50bps) 2.50% (-50bps)
Source: Maybank-IB
Capitalisation stayed strong. System capitalisation edged up with a
core ratio of 12.3% (Mar ‘09: 11.6%) and RWCR of 14.2% (Mar ‘09:
13.5%) after capital raising exercises by the banks. The higher ratios
had resulted in higher excess capital, by RM5.1b, to absorb potential
losses. We estimate the system can absorb a loss of RM54.7b.
Loans Momentum
(% YoY) May 08 Jun 08 Jul 08 Aug 08 Sep 08 Oct 08 Nov 08 Dec 08 Jan 09 Feb 09 Mar 09 Apr 09
Gross loans +11.0 +11.7 +9.9 +11.0 +10.6 +10.3 +10.7 +12.8 +11.7 +10.9 +10.9 +10.6
- Businesses +12.6 +14.4 +9.4 +11.4 +9.5 +8.8 +7.8 +13.2 +11.8 +10.0 +9.5 +9.2
- Households +8.7 +8.9 +8.8 +8.7 +9.1 +8.9 +9.0 +9.1 +9.1 +8.9 +8.8 +8.5
Applications -9.7 -5.2 +11.9 +25.5 -5.8 -7.9 -32.6 -18.8 -21.0 +8.1 +5.4 -5.4
Approvals -19.0% -23.4 +2.3 +15.8 -2.9 -14.4 -44.0 -23.7 -35.5 -15.9 -0.7 -18.2
Source: Bank Negara
Interest Rates
(%) May 08 Jun 08 Jul 08 Aug 08 Sep 08 Oct 08 Nov 08 Dec 08 Jan 09 Feb 09 Mar 09 Apr 09
BLR 6.72 6.72 6.72 6.72 6.72 6.72 6.66 6.48 6.38 5.89 5.53 5.53
ALR 6.13 6.08 6.02 5.98 5.96 6.01 5.98 5.86 5.77 5.49 5.16 5.13
ADR 3.31 3.31 3.31 3.31 3.31 3.31 3.21 3.16 2.63 2.16 2.14 2.14
ALR-ADR 2.82 2.77 2.71 2.67 2.65 2.70 2.77 2.70 3.14 3.33 3.02 2.99
ALR-BLR -0.59 -0.64 -0.70 -0.74 -0.76 -0.71 -0.68 -0.62 -0.62 -0.40 -0.37 -0.40
ADR-CPI -0.49 -4.38 -5.20 -5.19 -4.90 -4.32 -2.50 -1.24 -1.27 -1.54 -1.38 -0.91
Note: ADR refers to the average of fixed deposit rates; Source: Bank Negara
Asset Quality & Capitalisation
May 08 Jun 08 Jul 08 Aug 08 Sep 08 Oct 08 Nov 08 Dec 08 Jan 09 Feb 09 Mar 09 Apr 09
Gross NPL 37.8 36.9 36.7 36.8 36.1 36.3 35.9 35.1 34.9 34.9 33.6 33.7
(3-mth) (RMb)
Net NPL (%) 2.81 2.66 2.53 2.50 2.40 2.43 2.38 2.25 2.21 2.23 2.24 2.24
LLC(%) 80.9 82.4 84.5 85.1 86.9 86.7 86.8 89.1 89.6 89.2 88.3 88.5
Tier 1 cap (%) 9.9 10.8 10.9 10.8 10.6 10.4 10.4 10.6 11.1 11.2 11.6 12.3
RWCR (%) 13.0 13.6 13.6 13.4 13.1 12.6 12.5 12.1 13.0 13.2 13.5 14.2
Source: Bank Negara
28 May 2009 Page 2 of 3

3. Banking
Definition of Ratings
Maybank Investment Bank Research uses the following rating system:
BUY Total return is expected to be above 10% in the next 12 months
HOLD Total return is expected to be between -5% to 10% in the next 12 months
SELL Total return is expected to be below -5% in the next 12 months
Applicability of Ratings
The respective analyst maintains a coverage universe of stocks, the list of which may be adjusted according to needs. Investment ratings are
only applicable to the stocks which form part of the coverage universe. Reports on companies which are not part of the coverage do not
carry investment ratings as we do not actively follow developments in these companies.
Some common terms abbreviated in this report (where they appear):
Adex = Advertising Expenditure FCF = Free Cashflow PE = Price Earnings
BV = Book Value FV = Fair Value PEG = PE Ratio To Growth
CAGR = Compounded Annual Growth Rate FY = Financial Year PER = PE Ratio
Capex = Capital Expenditure FYE = Financial Year End QoQ = Quarter-On-Quarter
CY = Calendar Year MoM = Month-On-Month ROA = Return On Asset
DCF = Discounted Cashflow NAV = Net Asset Value ROE = Return On Equity
DPS = Dividend Per Share NTA = Net Tangible Asset ROSF = Return On Shareholders’ Funds
EBIT = Earnings Before Interest And Tax P = Price WACC = Weighted Average Cost Of Capital
EBITDA = EBIT, Depreciation And Amortisation P.A. = Per Annum YoY = Year-On-Year
EPS = Earnings Per Share PAT = Profit After Tax YTD = Year-To-Date
EV = Enterprise Value PBT = Profit Before Tax
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28 May 2009 Page 3 of 3