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Saturday, January 31, 2009

Investors avoiding banking stocks

Investors avoiding banking stocks


A FURTHER decline in loan applications and approvals has turned investors away from banking stocks.

As at 4pm yesterday, the finance index on Bursa Malaysia had fallen more than 36 points but managed to bounce back to close 2.01 points higher at 6,912.13.

In early trade, most banking stocks fell at least 0.5% with Bumiputra-Commerce Holdings Bhd leading the loss. The counter fell more than 2.4% to RM6.15 in the morning but ended 10 sen higher at RM6.40. Public Bank Bhd gained 5 sen to RM8.80, Alliance Financial Group Bhd put on 3 sen to RM1.89 while EON Capital Bhd added 2 sen to RM3.46.

Among the losers were Malayan Banking Bhd and Hong Leong Bank Bhd, both down 5 sen to RM5.25 and RM5.10 respectively. RHB Capital Bhd shed 4 sen to RM3.68 while AMMB Holdings Bhd slipped 3 sen to RM2.29.

An analyst from a foreign brokerage says the selling on banking stocks yesterday is just a knee-jerk reaction.

“The local banks are still resilient and we expect them to weather the current economic turmoil. It (the fall in banking stocks) was just an automatic response by investors after Bank Negara released the latest data on Thursday,” he says.

The analyst says as loan growth is one of the components contributing to a bank’s bottomline in the future, investors will be sensitive to monetary and financial developments.

Although loan applications and approvals continued to slide, loan disbursements to both the business and household sectors in December grew by 12.8%.

RAM Holdings Bhd chief economist Dr Yeah Kim Leng says the higher loan disbursement means more money is getting into the hands of individuals and corporate borrowers, which in turn will translate into higher spending.

“The other implication we can draw from the increased lending in December is that banks are heeding calls from the Government and the public not to turn off the credit flows in the face of a worsening global recession,” he said.

Yeah says the December disbursements likely comprised loan applications processed prior to the month.

“We expect bankers to turn more cautious in the coming months given the uncertainty over the severity and length of the global downturn at this point in time.

“Given that most countries, including Malaysia are rolling out sizeable fiscal and monetary stimulus packages to help boost confidence among banks and businesses, a depression is unlikely in these countries,” he says.

To a question, Yeah says stimulating domestic demand is the key to offsetting the sharp export downturn caused by the recession in the advanced economies.

“Lower interest rate encourages more borrowing and spending while declining inflation rate raises real disposable income or purchasing power. As long as the overall spending by government, consumers and businesses is not cut back drastically, the Malaysian economy will be able to withstand the global recessionary forces,” he adds.

On the external front, the analyst says there were positive signs.
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