Banks see boosts from tax holiday period

KUCHING: Analysts see banks benefitting from the tax holiday period in Malaysia when loans growth inched higher by 30 basis points ( bps) to 5.3 per cent year on year ( y- o-y) but decelerated by 40bps to 0.3 per cent month on month (m- o-m).

Not surprisingly, loans application and approvals were up -- driven by household demand and boosted by the tax holiday period, said researchers at Kenanga Investment Bank Bhd ( Kenanga Research).

“July’s loans continued its upward trend, adding another 30bps to 5.3 per cent YoY to RM1.63 trillion. However, on a monthly basis, loans decelerated by 40bps to 0.3 per cent m- o-m,” it said in a report.

“As usual, households segment is still the main driver, turning north for the month adding 30bps to 6.2 per cent y- o-y with the business segment adding another 20bps to 4.4 per cent y- o-y.

The uptick in loans can also be attributed to repayments outpacing disbursements, Kenanga Research said, as both business and household disbursements surged forward at 15.1 per cent y- o-y and 23 per cent y- o-y, respectively.

“On an annualised basis, loans slowed by 30bps to five per cent y-oy,” it added. “Overall net financing in the financial sector inched by another 40bps to 6.7 per cent YoY as both corporate bonds and loans trek higher by another 60bps and 30bps respectively to 13 per cent and 4.7 per cent.

“Uptick in business loans was driven by working capital and loans for other purpose 2.9 per cent and 14.7 per cent, respectively, while for households, it was driven by residential property and personal financing at 8.3 per cent and 7.7 per cet, respectively.

Households applications and approvals went up, boosted by the tax holiday period. Loans applications surprisingly slowed in July, decelerating to 1.3 per cent y- o-y as business applications fell 12 per cent y- o-y mitigated by strong household applications at 15.1 per cent y- o-y.

Fall in business applications was led by fall in working capital and construction falling by 14.1 per cent y- o-y and 66.9 per cent yo-y, respectively.

Due to the tax holiday period, Kenanga research saw that applications for residential property and hire purchase continued to be strong at 14.5 per cent y- o-y and 33.5 per cent y- o-y, respectively.

Meanwhile, the team over at MIDF Amanah Investment Bank Bhd ( MIDF Research) said there could be signs of deposits competition.

“This comes as deposits grew at a higher pace of 5.8 per cent y- oy to RM1.81 trillion from the five per cent y- o-y to RM1.8 trillion the previous month.

“We opine that this could be a signal of intensifying competition for deposits in the industry due in part to the NSFR requirement in January 2019. Indeed, we have seen net interest margins impacted by this as evident by the recent results from banks under our coverage.

“Marginal rise in savings rate but fixed deposits rose higher. We observed that savings rate went up by one bps m- o-m to 1.05 per cent while 12-month fixed deposits have risen 11bps) to 3.33 per cent.

“Base rate went up by one bps to 6.91 per cent. We understand that this was due to the impact of the OPR hike in January as deposits were repriced higher. It could also be due to the impact of the deposits competition.”

Meanwhile, asset quality remained stable as MIDF Research estimated that GIL ratio improved slightly again to 1.58 per cent. This led the research firm to conclude that asset quality in the banking system remains solid and stable, with no undue stress can be seen yet in the horizon.

“As we expected, loans growth continue its upward trajectory. We opine loans growth also received a boost from the increase consumer sentiment and consumption due to the zero rating of GST in June CY18.

“We believe that the loans growth trajectory will be maintained. Therefore, we do not see a reason to revise our loans growth target of 5.5 per cent y- o-y for this year.

“We are maintaining our positive stance on the banking sector. With the boost to loans growth and improved consumer sentiment, we believe that banks will continue to perform well.”