Faster pace of loans growth, mortgages continue to lead the way

KOTA KINABALU: Things are looking up for the banking sector as the system’s total loans grew at a faster pace in April at 4.8 per cent year over year (y-o-y) or 4.4 per cent quarter over quarter (q-o-q) to RM1.61 trillion.

According to the research arm of MIDF Amanah Investment Bank Bhd (MIDF Research), mortgages were still the leading cause of loans growth as loans for the purchase of residential property continued to be robust at +8.9 per cent y-o-y to RM533.5 billion.

“It is the largest contributor to loans in the banking system at 33.1 per cent. Also, it seems that mortgages seem to settling around this level since December 2016. “This could indicate a steady state in loans growth for the segment and could also mean that there is a continuous stable demand for housing and the associated financing,” said the research arm.

The next highest contributor is working capital loans at 23.2 per cent which saw a faster pace of growth at +1.3 per cent y-o-y to RM372.8 billion.

In terms of applications and approvals, loan application surged by 20.1 per cent y-o-y in April and approvals surged as well with a 21.6 per cent y-o-y in April.

“Both loans demand and approval acceleration was due to turnaround in demand for mortgages and continued strong growth in loans demand for purchasing non-residential properties, personal use and working capital.

“This resulted in total 4 month loans demand to continue to grow better this year, comparatively with CY17,” guided the research arm.

Looking forward, MIDF Research opines that loans growth will continue to pick up further in the coming month due to the healthy loans pipeline.

However in the longer term, the research arm maintains that the main driver for loans growth will be driven by the retail segment, and that loans growth will come in better in CY18 as compared to CY17 levels. Despite this, they are have still cautiously revised their expectations of total CY18 loans growth to a +5.5 per cent y-o-y growth from 6.0 y-o-y growth.

“This is due to the impact of the surprised result of GE14. We foresee the delay in loans demand and disbursement coming from corporate and SME segment as businesses adopt a ‘wait-and-see’ approach to the new Government’s economic policy direction,” they explained.

All in, the research arm maintains its positive view on the banking sector’s performance in CY18 and believes that the higher demand and approval for loans will help maintain its earnings potential.