Malaysian banks face slower loan growth

> Ma­jor lenders cut tar­gets for lend­ing and re­turn on equity amid chal­leng­ing econ­omy

The Sun (Malaysia) - - MEDIA & MARKETING - BY EE ANN NEE

PETALING JAYA: The Malaysian bank­ing sec­tor con­tin­ues to face head­winds with loan growth ex­pected to slow down as banks pro­gres­sively cut their lend­ing es­ti­mates and project a lower re­turn on equity (ROE) this year amid a chal­leng­ing eco­nomic en­vi­ron­ment.

Last week, Malayan Bank­ing Bhd (May­bank), the coun­try’s largest bank by as­sets, cut its 2016 loan growth tar­get to 2-3% from an ini­tial tar­get of 8-9%. The re­vi­sion came af­ter it reg­is­tered an an­nu­alised loan growth of only 2.9% for Malaysian op­er­a­tions for the first nine months of the year, while its in­ter­na­tional op­er­a­tions saw a mar­ginal con­trac­tion of 2.6% given softer eco­nomic con­di­tions.

May­bank’s loan growth and ROE tar­get re­vi­sions are premised on its se­lec­tive as­set growth this year, and it is mind­ful of po­ten­tial as­set qual­ity weak­ness in a slow­ing eco­nomic growth en­vi­ron­ment in some of its key op­er­at­ing mar­kets.

In Au­gust, an­other lead­ing bank, CIMB Group Hold­ings Bhd, trimmed its loan growth and ROE tar­gets to 6-7% and 9% re­spec­tively, from 10% pre­vi­ously, due to the macroe­co­nomic con­di­tions and the re­gion’s gross do­mes­tic prod­uct growth. Then, RHB Bank Bhd re­vised its loan growth fore­cast for this year to 4-5%, from 8%.

AmRe­search an­a­lyst Kelvin Ong said it is an in­dus­try trend that banks are re­vis­ing (down­wards) their tar­gets due to the slow growth.

“This year and next, loan growth will be slower than last year’s, so we don’t ex­pect much im­prove­ment in 2017 from the end of this year,” Ong told Sun­Biz, pro­ject­ing loan growth to come in at 5-6% in 2016, from 7.9% in 2015.

Moody’s In­vestors Ser­vice vi­cepres­i­dent Eu­gene Tarz­i­manov said loan growth in Malaysia, sim­i­lar to other Asean mar­kets, will con­tinue to soften in 2017 to a mid-sin­gle digit.

“We see more slow­down in loans to cor­po­rates, on the back of weak in­vest­ment ac­tiv­ity, low com­mod­ity prices and head­winds in re­gional trade. In con­trast, growth in hous­ing mort­gages and SMEs will show a bit more re­silience, due to good de­mand for these loans and gen­er­ally low bor­row­ing costs,” Tarz­i­manov told Sun­Biz in an email.

He said May­bank’s new loan growth tar­get of 2-3% for 2016 is ma­te­ri­ally lower than its pre­vi­ous 8-9% guid­ance, mainly be­cause of a sharper slow­down in re­gional loan growth – in economies like Sin­ga­pore and In­done­sia.

May­bank’s do­mes­tic loan growth tar­get for 2016 was ad­justed very mod­er­ately to 4-5% from 6-7%, as the do­mes­tic econ­omy is grow­ing at a good pace of over 4% in real terms, with good ex­pan­sion in hous­ing loans.

MIDF Re­search said with May­bank’s an­nu­alised loans and de­posit growth (as at the first nine months) way be­hind its tar­get, ex­pand­ing only 0.5% and 3.2% re­spec­tively, it is not sur­prised that the man­age­ment has re­vised its guid­ance for FY16.

Last week, Bank Ne­gara Malaysia main­tained the Overnight Pol­icy Rate at 3% as the ring­git con­tin­ued to weaken against the US dol­lar. It closed at 4.465 against the dol­lar last Fri­day.


A scene at the Port of Long Beach, US. Pres­i­den­t­elect Don­ald Trump has said Wash­ing­ton will pull out of the TPP agree­ment, was signed by its 12-mem­ber coun­tries on Feb 4, 2016, on the day he takes of­fice.

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