Better loan growth in 2018 — analysts
KUALA LUMPUR: Based on the current trend of loan demand and approval, analysts are anticipating that the banking sector will see better loans growth in 2018.
In a sector update, MIDF Amanah Investment Bank Bhd (MIDF Research) pointed out that the number of applied loans had grown at a faster rate in November 2017 at 15.8 per cent year over year (y-o-y) to RM82.6 billion – mainly driven by housing loan applications.
Similarly, the number of approved loans also skyrocketed to 22.4 per cent y-o-y to RM36.6 billion with the main contributor for the strong growth attributed towards the purchase of residential properties.
On a year over year (y-o-y) comparison, this segment grew 18.2 per cent y-o-y to RM3.7 billion – believed to be in line with the trend of banks growing their mortgage books that MIDF Research observed in 3QFY17.
On the whole, total approved loans during January to November 2017 grew at +8.8 per cent y-o-y to RM345.6 billion, while approval rate jumped to 44.1 per cent.
“We opine that this trend of strong mortgage demand and approvals may continue into 2018, especially due to the spill over effect from the fourth quarter of 2017 (4Q17),” said the research arm.
With that in mind, MIDF Research is forecasting that loans growth will begin to pick up in 2018 at around 6.0 per cent y-o-y growth.
On the other hand, AmInvestment Bank Bhd (AmInvestment Bank) is opining that loans will grow more modestly at 5.0 per cent y-o-y based on an the expected GDP growth of 5.5 per cent – resulting in a loan to GDP multiplier of close to 1.0 per cent.
Besides that the bank is also forecasting that allowances for loan losses will be higher in 2018 due to the implementation of MSFR9 on January 1, 2018.
This along with a potential revision of 25 to 50 basis points to the overnight policy rate by Bank Negara Malaysia (BNM) will prompt banks to re-price their loans higher – adjusting to higher provisioning and the OPR hike ahead of deposit rates.
“In the event that this (OPR rate hike) occurs, it would have a temporary positive impact on bank’s net interest margin as loans will be re-priced higher, adjusting to the hike in the OPR ahead of deposit rates,” explained the bank.
All in, both analysts are of the opinion that the banking sector will continue to do well in 2018 on the back of continued improvement in domestic economic performance, external trade and stable employment environment.
AmInvestment Bank retained its ‘overweight’ rating with a forecast of the sector’s return on equity to remain stable between 10.0 and 11.0 per cent, while MIDF Research is maintaining its ‘positive’ stance on the banking sector on the expectation that higher demand and approval for loans will allow the sector to maintain its earnings potential in 2018.