PP 7767/09/2010(025354)

RHB Research
Corporate Highlights

Malaysia
Institute Sdn Bhd
A member of the
RHB Banking Group
Company No: 233327 -M

Se cto r New s Updat e

13 September 2010

MARKET DATELINE
Banking Recom : Overweight
(Maintained)
Stricter Credit Card Rules Ahead?

Table 1: Sector Valuations

PER (x) EPS gwth (%) P/BV (x) ROE (%) Net Div Yld (%)
Price FV Rec FY10 FY11 FY10 FY11 FY10 FY11 FY10 FY11 FY10 FY11
Maybank 8.42 9.86 OP 15.6 13.6 42.6 14.7 2.1 2.0 14.5 15.2 4.9 3.1
CIMB 7.95 8.40 OP 16.6 14.1 20.8 17.2 2.2 2.0 15.2 15.1 1.2 1.2
Public Bank - L 12.28 13.75 OP 15.0 13.4 11.8 11.8 3.4 3.0 24.1 23.6 3.7 4.0
AMMB^ 5.93 6.95 OP 14.1 12.4 20.8 14.1 1.7 1.5 12.5 13.0 2.5 2.8
HLB 9.05 10.70 OP 13.3 12.8 9.1 3.9 2.2 2.0 16.3 15.1 2.0 2.0
Affin 3.07 4.10 OP 9.5 8.9 30.1 6.4 0.9 0.8 9.8 9.6 2.1 2.1
AFG^ 3.09 3.50 OP 12.3 11.3 28.9 9.0 1.5 1.3 12.6 12.5 2.1 2.1
EON Cap 7.00 8.33 MP 11.5 10.1 23.5 14.3 1.2 1.1 11.2 11.5 1.4 1.4
RHB Cap* 7.10 NR NR 11.1 10.1 14.3 9.4 1.6 1.4 14.8 14.9 2.4 2.6
Sector Wt. Avg 14.9 13.1 24.1 13.4 2.3 2.1 16.3 16.3 2.9 2.6
*Not under coverage ^FY10-11 refers to FY11-12

♦ Stricter credit card guidelines ahead? The weekend Edge reported Chart 1. Industry NPL
that BNM is looking at implementing measures that could effectively (RMm)
69,000
Gross NPL(LHS) Gross NPLratio(RHS) Net NPLratio(RHS) (%)
17

tighten credit card spending. 64,000 15

♦
59,000 13
Possible measures mentioned to cap credit card spending include: 54,000
11
1) restricting the number of credit cards per consumer, especially those in 49,000
9

the lower income bracket; 2) raising the eligibility bar in terms of annual 44,000
7

income (currently annual income of RM18,000 required to be eligible); 39,000

5
34,000
and 3) capping the credit spending limit. 29,000 3

♦ The latest development comes on the back of reports that BNM was
24,000
Jun-99 Jun-00 Jun-01 Jun-02 Jun-03 Jun-04 Jun-05 Jun-06 Jun-07 Jun-08 Jun-09 Jun-10
1

mulling a possible cap on mortgages in a bid to rein in household sector Chart 2. Industry LLC
debt, which rose to 76.6% of GDP in 2009 (2008: 63.9%). Already, the 100 (%)

95

imposition of an annual service tax fee of RM50 last year has seen the 90

85

number of card holders reduce to 8.9m from 10.8m as at end-2009. 80

75

♦
70

BNM’s statistics, however, suggest that credit card receivables 65

60

remain manageable. Firstly, credit card balances accounted for around 55

50

3.3% of total system-wide outstanding loans, a level that has been rather 45

40

stable since Nov ’06. This implies that growth has not been overly 35
Jan-99

Jan-00

Jan-01

Jan-02

Jan-04

Jan-06

Jan-08

Jan-10
Jan-03

Jan-05

Jan-07

Jan-09
excessive and broadly in line with industry growth. Secondly, while Jul ’10
oustanding credit card balance reached a high of RM28.2bn, we note that
the proportion of current credit card balance, i.e. <30 days in ageing, is
also at a high of 91.2% of total credit card balance. This implies that
consumers have been able to at least meet the minimum monthly
payments. It also suggests that banks may have in place better
monitoring and collection procedures. Finally, credit card NPLs have also
been falling, although not as quickly as the pace of decline in system-wide
NPLs.

♦ But measures could be long-term positive. While tightening

measures could curtail credit card growth ahead, if implemented, one key
positive is that the new measures could help keep credit quality in check.
It would also serve as a reminder to industry players that quality credit
growth should be the priority.

♦ Forecasts. No change to our earnings forecasts.

♦ Investment case. In our view, the banking sector represents the best
proxy to the economic recovery and we continue to believe that the sector David Chong, CFA
can help take the lead in lifting the market to higher grounds. (603) 9280 2186
Overweight stance maintained. david.chong@rhb.com.my

Please read important disclosures at the end of this report.

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 Chart 3 : Credit cards in circulation currently lower due to Chart 4 : Credit card receivables posted CAGR of 17.2%
imposition of service tax since 1994
m RMm
12 35% 30,000 60%

30% 50%
10 25,000
25% 40%

8 20% 20,000 30%

15% 20%
6 15,000
10% 10%

4 5% 10,000 0%

0% -10%
2 5,000
-5% -20%

0 -10% 0 -30%
1994 1996 1998 2000 2002 2004 2006 2008 Jul '10 1994 1996 1998 2000 2002 2004 2006 2008 Jul '10
Principal holder (LHS) Supplementary (LHS) YoY growth (RHS) Credit card receivables (LHS) YoY growth (RHS)

Source: BNM Source: BNM

Chart 5 :Current balances make up 91.2% of total credit Chart 6 : Proportion of credit card receivables to total
card receivables system-wide loans broadly stable since end-2006
RMm 3.6%
30,000 95%
3.5%

25,000 90% 3.4%

3.3%
20,000 85%
3.2%

15,000 80% 3.1%

3.0%
10,000 75%
2.9%

2.8%
5,000 70%
2.7%
0 65% 2.6%
1994 1996 1998 2000 2002 2004 2006 2008 Jul '10
Apr-06

Jul-06

Oct-06

Jan-07

Apr-07

Jul-07

Oct-07

Jan-08

Apr-08

Jul-08

Oct-08

Jan-09

Apr-09

Jul-09

Oct-09

Jan-10

Apr-10

Jul-10
Current credit card receivables (LHS) % of total receivables (RHS)

Source: BNM Source: BNM

Chart 7 : Absolute credit card NPLs falling but proportion

to system-wide NPLs at upper end of historical range
RMm
900 2.5%
800
700 2.0%

600
1.5%
500
400
1.0%
300
200 0.5%
100
0 0.0%
2Q06

3Q06

4Q06

1Q07

2Q07

3Q07

4Q07

1Q08

2Q08

3Q08

4Q08

1Q09

2Q09

3Q09

4Q09

1Q10

2Q10

Credit card NPLs (LHS) % of system-wide NPLs (RHS)

Source: BNM

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 Table 2 Credit card proportion to total loans and credit card NPLs for individual banks
Credit card proportion (%) Credit card NPL Ratio (%)
Sep 09 Dec 09 Mar 10 Jun 10 Sep 09 Dec 09 Mar 10 Jun 10
Affin 0.4 0.4 0.4 0.4 1.2 0.9 0.7 0.7
AFG 3.3 3.3 3.2 3.2 2.6 2.3 2.2 2.2
AMMB 2.9 2.7 2.6 n.a.* 4.5 3.7 3.3 n.a.*
CIMB 2.3 2.4 2.6 2.6 2.3 2.3 2.2 1.8
EON 4.2 4.4 4.3 4.3 2.2 2.1 2.4 2.2
Hong Leong 5.7 5.9 5.8 5.7 1.6 1.4 1.3 1.3
Maybank 2.7 2.8 2.8 2.9 1.5 1.4 1.4 1.1
Public Bank 0.8 0.9 0.8 0.8 1.3 1.2 1.2 1.1
RHB 3.3 3.2 3.1 3.2 3.5 3.1 2.9 2.5
*Presentation format changed
Source: Banks, RHBRI

IMPORTANT DISCLOSURES

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The recommendation framework for stocks and sectors are as follows : -

Stock Ratings

Outperform = The stock return is expected to exceed the FBM KLCI benchmark by greater than five percentage points over the next 6-12 months.

Trading Buy = Short-term positive development on the stock that could lead to a re-rating in the share price and translate into an absolute return of 15% or
more over a period of three months, but fundamentals are not strong enough to warrant an Outperform call. It is generally for investors who are willing to take
on higher risks.

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Underperform = The stock return is expected to underperform the FBM KLCI benchmark by more than five percentage points over the next 6-12 months.

Industry/Sector Ratings

Overweight = Industry expected to outperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Neutral = Industry expected to perform in line with the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Underweight = Industry expected to underperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

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