SME loans among positives that kept banking sector on firm ground, says HLIB

KUALA LUMPUR: The banking sector has ample liquidity and has benefited from regulations on capital management, said HLIB Research yesterday in its “Industry Insight” report on banking.

On Bank Negara Malaysia’s 2016 Annual Report that was released on Thursday, the research house said despite the challenges faced last year, positives such as small and medium enterprise (SME) loans, the cooling down of household debts and an increased use of technology by banks kept the banking sector on firm ground.

“All in, the banking sector delivered satisfactory performance despite gross domestic product (GDP) growth moderation with oil and foreign exchange shocks last year.

“Outstanding loans ended last year with 5.3 per cent growth and remained supportive of economic growth with ample liquidity,” said HLIB Research.

Despite the negative shocks, the banking sector “remained resilient, with ample buffer to absorb loss, chiefly benefiting from various regulations on capital management”.

On factors that provided a strong lifeline to banks, HLIB Research said SME loans surged 9.2 per cent, resulting in business loans growing by 4.8 per cent.

The government’s support for SME growth in the country resulted in various allocations under the 2017 Budget for SME development amounting to RM930 million.

The firm noted that there was further moderation of household debt growth last year to 5.4 per cent (2015: +7.3 per cent), and this resulted in household debt level dipping to 88.4 per cent of GDP from 2015’s 89.1 per cent.

HLIB Research said the bulk of the debt was tied up in properties and principal-guaranteed investments, which contributed to wealth accumulation.

Overall, the research house takes a conservative stance on the banking sector with a “neutral” rating.

However, those within the sector that received “buy” recommendations are Malayan Banking Bhd with a target price of RM9.45, BIMB with a target price of RM4.86 and Alliance Financial Group with a target price of RM4.20. Francis Dass