Loan disbursements could gather pace in Q4

> Despite subdued growth, banks continue to see robust expansion in fund-based income, say analysts

PETALING JAYA: AffinHwang Capital foresees a downside risk to its 6% loan growth target for 2017, though the fourth quarter may potentially see more robust demand.

It said the banking system saw increased disbursement of 9.7% month-on-month (m-o-m) in August (versus a 5.4% m-o-m decline in July), hence supporting overall system loan growth of 5.8% y-o-y. Nonetheless, on a year-to-date basis, the banking system loan growth is still at a subdued 2.4% (with an annualised growth rate of 3.5%) versus its full year forecast of 6%.

“On a more positive note, we do not discount the possibility of a strong fourth quarter (with the commencement of a new capex cycle), where loan disbursements could ramp up,” AffinHwang said in its report yesterday.

Despite the subdued loan growth year-to-date, it said banks continue to see robust expansion in its fund-based income (1H17 +9.3% y-o-y) as a result of the lower overall funding cost and repricing of loans, as reflected in 1H17 net interest margin, which was up 7bps y-o-y to 2.32%.

“We foresee sector-earnings growth of 10.5% y-o-y in 2017, followed by a more modest 4.4% y-o-y in 2018 and 3.8% y-o-y in 2019. Favourable domestic demographic trends (driving consumption and housing needs), ample infrastructure projects in the pipeline and accommodative monetary policy are supportive reasons for the growth in earnings,” said AffinHwang.

It maintained its sector overweight call with its sector top picks AMMB Holdings Bhd, Public Bank Bhd and Malayan Banking Bhd.

Maintaining its loan growth assumption of 5.6% for 2017, TA Securities noted that consumer spending remains resilient and supportive of loan growth while optimism among businesses have improved.

Elsewhere, TA said the banking system’s asset quality remains intact, backed by unchanged gross impaired loans ratio of 1.2% and liquidity coverage ratio in excess of 100%.

“We believe the overall debt profile for the country remains healthy. Other drivers for earnings growth include potential hikes in the overnight policy rate, leading to margin expansion. We expect the increase in rate to augur well for the banking sector as margins are compressed by competitive pressures,” said TA.

It reiterated its overweight stance on the sector, premised on a more sanguine macro outlook.