Positive on banking sector’s outlook in 2H18
KOTA KINABALU: Affin Hwang Investment Bank Bhd (AffinHwang Capital) remains positive on the banking sector outlook in the second half of 2018 (2H18), leaving its loan growth target of five per cent unchanged.
The firm remained upbeat on the prospects in 2H18, as post-election confidence within the country on the new Pakatan Harapan coalition is gaining ground and is a re-rating factor for business activities and consumer spending.
“We believe that favourable policies in place will continue to stimulate purchase of big-ticket items such as passenger cars and affordable property as well as small-ticket items, which are the key drivers behind Malaysia’s gross domestic product (GDP) growth at circa five per cent,” the research firm said.
“We saw sustained levels of applications and approvals in the auto loan segment (from June 18’s level), in light of the auto tax-holiday period, but a pullback in the auto loans growth is expected around September 2018.”
While there are some concerns of slowingdowninconsumerspending, AffinHwang Capital believed that households, despite having frontloaded their expenditure in the second quarter of 2018 (2Q18) and 3Q18, will unlikely cut spending significantly.
It noted that this was the case before and after the Goods and Services Tax (GST) implementation in April 2015.
“As such, we believe the outlook in 2H18 will remain optimistic for the banking sector and we keep our loan growth target of five per cent unchanged.”
“Nonetheless, we do acknowledge downside risks which may emanate from the on-going trade war between US and China, which may slow down export activities in Malaysia due to slower growth in China.”
On another note, Affin Hwang viewed 2018 will likely see a more favourable macro outlook with GDP growth from increased exports and a recovery in commodity prices.
“In fact, our house view is for the ringgit to touch RM3.80 against the US dollar by end-2018, and this should bode well for consumer and business confidence levels and encourage spending.”
The research firm’s views were anchored upon its economist’s forecasts: GDP growth forecast of five per cent for 2018, underpinned by a potentially higher oil price of US$68 per barrel (bbl) by end2018, private consumption at 6.5 per cent and private sector capital investment at 8.8 per cent.
As for the recent cancellation of various mega projects, such as the MRT 3 project (RM40 billion to RM45 billion) and deferment of the High Speed Rail project (RM110 billion), East Coast Rail Link, Affin Hwang believed that the overall impact on the banking sector will not be detrimental as banks’ exposure to these projects are limited.
“We understand that most of the funding for cancelled projects were from overseas, while some were raised from the bond market.
“Even so, we believe that contractors involved in the initial phases will get their compensation from the government for work done.”