Malaysian banks' loan-to-deposit ratio improves slightly to 89.6%

Thanks to stronger deposit growth in August.

Overall deposits growth trend improved, expanding 0.7% mom and 5.0% yoy (vs Jul 17: flat mom and +4.3% yoy) in August. According to UOB Kay Hian, the incrementally stronger deposit vs loans growth led to a slight improvement in  loan-to-deposit ratio (LDR) to 89.6% in Aug 17 vs 89.8% in July 17.

"Despite the slight improvement in LDR, it remains elevated. This coupled with the implementation of net stable funding ratio (NSFR) requirements of 100% and above no later than Jan 19 will cap overall funding cost elevation."

Here's more from UOB Kay Hian:

Implementation of NSFR to cap overall system funding cost elevation. Based on our channel checks, most of the banks under our coverage (apart from BIMB and Affin) currently have NSFR ratios that are above the minimum 100% requirement.

However, to maintain a comfortable ratio of >100%, banks will have to continue to compete for longerterm deposits or to raise relatively more expensive medium-term note funding which reduces the scope for funding cost to ease.