Slower loan growth projected this year

CGS-CIMB Research is projecting a slower loan growth of between two and three per cent this year owing to a weakening trend for banks in the applications and approvals for mortgages and car loans.

Its analyst Winson Ng said the leading loan indicators declined by double-digit in February, with a contraction of 15.4 per cent year-onyear for loan applications and 18.4 per cent year-on-year for loan approvals.

“The weak February leading loan indicators point to the potential downtrend in banks’ year-onyear loan growth in the next one to two months,” he said in a research report on Saturday.

Ng said the weaker loan growth would not deter a rebound in net interest income (NII). He expected banks’ NII to expand by 4.6 per cent this year.

“This was due to the expected improvement in net interest margin (around three basis points) on the back of the stable Overnight Policy Rate in 2021 and the absence of the oneoff hefty modification loss for fixedrate loans incurred by banks last year.”

He said banks’ loan loss provisioning in the first quarter of this year would be lower than the that recorded in the fourth quarter of last year.

“We are encouraged that the industry’s gross impaired loan (GIL) ratio inched down from 1.6 per cent at end-January to 1.59 at end-February. Another positive sign was the smaller increase of only RM600.7 million in banks’ total provision in the first two months of this year, compared with a hike of RM3.73 billion in the fourth quarter of last year.”

The industry’s loan growth eased marginally from 3.8 per cent year-on-year at end-January to 3.7 per cent year-on-year at end-February this year, said CGSCIMB Research.

The slowdown came from the pull-back in the growth of business loans from 1.5 per cent yearon-year at end-January to one per cent year-on-year at end-February, reflecting the weak credit demand for business loans.

Ng said the momentum in household loans picked up from 4.9 per cent year-on-year at endJanuary to 5.1 per cent year-onyear at end-February.

“We reiterate our ‘overweight’ call on banks, underpinned by the expected decline in LLP and turnaround in NII growth in 2021.”

The weak February leading loan indicators point to the potential downtrend in banks’ year-on-year loan growth in the next one to two months.