SMALLER LOAN GROWTH LIKELY
Slowdown due to moderation in household and non-household segments, says Maybank IB
MAYBANK Investment Bank Bhd (Maybank IB) expects slower loan growth of 5.1 per cent this year for the banking industry versus 5.6 per cent last year.
Maybank IB said the slowdown would be due to the moderation in household (HH) and and nonhousehold loan growth.
“Last year’s industry loan growth of 5.6 per cent was in line with our expectations and we maintain this year’s growth forecast of 5.1 per cent, with expectations of a moderation in both HH and non-HH loan growth,” it said.
“The key highlight is that the current account savings account (CASA) growth continues to slow and we would not be surprised if more banks raised their base rates,” it said.
Maybank IB remains “neutral” on the banking sector, but with “buy” calls on CIMB Group, BIMB Group, Alliance Bank and Hong Leong Financial Group, having recently downgraded AMMB Group to a “hold”.
The banking sector’s overall loan growth performance of 5.6 per cent last year is significantly better than 2017’s 4.1 per cent, as last year saw a pick-up in both HH and non-HH loan growths to 5.6 and 5.7 per cent, respectively, from 5.1 and 2.9 per cent.
“A point to note, however, is that HH lending to residential property, non-residential property and motor vehicles — the three big ticket segments — has moderated over the past year, and will likely remain soft into 2019,” said Maybank IB.
Total deposit and total CASA growth, meanwhile, continues to deviate and is a source of concern, according the investment bank.
Total deposit growth of 7.8 per cent year-on-year (YoY) is outpacing loan growth of 5.6 per cent YoY points to ample liquidity in the banking system, it said.
“However, CASA growth has trailed overall deposit growth for the seventh consecutive month, slipping to just 1.2 per cent at end of last year,” it said.
“This is of some concern as it points to fiercer deposit competition in the deposit space. With CIMB, HL Bank and Bank Islam having raised their base rates by 10-13bps (basis points), we would not be surprised if more banks opt to raise their base rates as funding costs rise.”
Risks for loans growth this year are mostly gross domestic products (GDP) growth related.
“The upside risks are strongerthan-expected GDP growth, which would contribute to stronger loan growth and lower credit risks, as well as improved liquidity, which would help to sustain interest margins,” said the research house.
Downside risks, however, are weaker-than-expected GDP growth, which could lead to slower loan growth and asset quality issues, potential interest rate cuts that could negatively impact interest margins in the short term and further slowdown in CASA growth, which could exacerbate deposit competition, said the firm.