Loans growth on track to meet expectations, moderate outlook maintained
KUCHING: The banking sector’s loans growth has been projected to be on track to meet analysts’ expectations while others have maintained their outlook of moderate loans growth ahead.
According to the research arm of MIDF Amanah Investment Bank Bhd ( MIDF Research), the loans growth for the banking system grew at a faster pace in June this current year 2017 ( CY17) at 5.7 per cent year on year ( y- o- y) to RM1,548 billion.
MIDF Research noted that this was the eighth consecutive month in which the loans growth had registered above the five per cent level, while the average loans growth was 5.7 per cent y- o- y for the first half of CY17 ( 1HCY17).
As MIDF Research had anticipated, auto loans will make a turnaround after seeing better total industry volume ( TIV) number this year.
It noted that loans for purchase of transport vehicles grew 1.4 per cent y- o- y to RM170.5 billion as at June CY17.
“We do not see a reason for us to change our loans growth expectation at current juncture,” MIDF Research said.
“This is especially so as we saw a turnaround in auto loans and acceleration in mortgage and working capital loans.”
The research arm thus maintained its mid-to-high single digit loans growth expectation for CY17.
Overall, MIDF Research believed that the latest data strengthened its conviction of a recovery in loans growth and overall banking sector in CY17.
“This is especially as there was a turnaround in auto loans,” the research arm said. “While loans demand fell in June, we understand that this was due to the impact of the festivities.”
Taking everything into consideration, the research arm did not see a reason to change its view of a better performance in CY17, driven by higher loans growth and stable margins.
As such, MIDF Research continued to be ‘positive’ on the sector. Meanwhile, the research arm of Kenanga Invesmtent Bank Bhd’s (Kenanga Research) view of moderate loans growth ahead still stands with system loans expected to grow between 5.5 per cent and six per cent for 2017.
Kenanga Research noted that growth will be supported by the resilient household as costpush inflation is expected to be contained in 2H of 2017 (2H17).
“We view the slump in business loan applications as a temporary blip which is likely to reverse and pick up pace in 2H17 as the economic prospects improve for 2018,” it said.
“The ease of approvals for both business and household is encouraging and we expect conditions to be favourable going forward as asset quality looks to be improving.”
Despite excess liquidity continuing to face downside pressure, Kenanga Research opined that net interest margin (NIM) compression will be mild as banks will be able to adjust their lending rates as demand accelerates.
The research arm still saw limited catalyst to drive earnings growth for the industry materially beyond its current expectation of a mid-to-high single-digit growth.
Kenanga Research thus reiterated its ‘neutral’ call as the research arm saw no change in the prevailing conditions ahead.
“There is no concrete catalyst and game changer on the horizon and structural and cyclical headwinds are still prevailing such as moderating economy, subdued loans growth and downward pressure on NIM,” it said.