Better loan growth this year

SLUGGISH loan growth was a major drag on banks’ performance last year. But this year, the prospects seem brighter for the banking sector in the country with loan growth expected to pick up pace amid a better economic outlook. As it stands, the most optimistic projection is for total loans in the banking system to grow by 5.5% in 2018, while the most pessimistic pegs the forecast at 4%. This compared with a loan growth of 4.1% in 2017, which was a slowdown from 5.3% in the preceding year as Bank Negara statistics show. The optimists argue that 2018 should see improved loan growth as they expect business loans to accelerate in tandem with higher economic activities. This is particularly so after the 14th general election (GE14), which has to be held by August this year. Prime Minister Datuk Seri Najib Tun Razak recently hinted that the impending GE14 would be held before July. Meanwhile, there are some who expect the overall loan growth to remain sluggish this year as consumer loans are expected to ease in tandem with sluggish sales of automobiles and properties in the country. Be that as it may, the underlying economic trends still favour an improved loan-growth prospect. That spells good news for most banks in the country. They are poised to stage a better performance this year compared with 2017 as earnings are expected to improve. The higher interest rate this year is also expected to alleviate pressure on their net interest margin. The positive economic environment also indicates less stress on asset quality, which is expected to remain stable for most players through 2018. Despite uncertainties over the new accounting standard MFRS 9, which would come into effect in April, most expect that to have only limited impact on banks’ earnings.