A tough year for banking sector amidst global turbulence
KUALA LUMPUR: Other than seeing a change of guard at the top, it was a rather tough year for the banking sector in 2016 for having to face the brunt of the global financial uncertainty with a dwindling loan growth.
After the doldrums, the sector is expected to pick up momentum in the second half of next year with a recovery in, among others, oil prices as well as a clear direction on US policies especially on its interest rates.
The sector had earlier bidden farewell to Bank Ne ga ra Malaysia' s first lady governor Tan Sri Dr Zeti Akhtar Aziz, who retired on April 30, 2016 after 16 years at the helm, and having admirably put a significant mark on the history of Malaysia's banking industry.
Among others, Zeti spearheaded the transformation of the banking and financial industry since the 1997/98 Asian Financial Crisis into a thriving and resilient one that was able to withstand financial stress and shock, including the impact of the 2008/09 Global Financial Crisis.
After much speculation of who would be her successor, it fell to none other than her colleague, another able candidate from the central bank itself, Datuk Muhammad Ibrahim.
A no-nonsence, hardworking guy, he set things in motion by having an OPR cut in July which caught economists by surprise but for him, it was a pre-emptive action to ensure that the economy remain on a steady growth path.
Following the OPR cut by 25 basis points to three per cent, banks adjusted their respective base rate (BR) and base lending rate (BLR), with Malayan Banking Bhd (Maybank) bringing down its BR by 20 basis points to three per cent from 3.2 per cent previously and BLR to 6.65 per cent from 6.85 per cent before.
CIMB Group lowered its BR by 20 basis points for loans or financing products for Malaysian business while AmBank Group reduced its BR and BLR by 20 basis points to 3.80 per cent and 6.65 per cent respectively.
Meanwhile, the global environment was full of uncertainties, with signs of moderating growth momentum in the major economies and increased downside risks from possible repercussions of the European Union (EU) referendum in the UK (Brexit).
The challenging economic environment, both on the domestic and external fronts, had pressured the local banking sector's performance, affecting its overall loan growth.
The banks had progressively cut their loan growth projections and expect a lower return on equity (ROE) this year due to the softer growth faced by the industry since August last year.
Maybank has revised downward its lending growth target to two to three per cent from an earlier 8-9 per cent, CIMB Group Holdings Bhd to six to seven per cent from 10 per cent initially, RHB Bank Bhd to four to five per cent from eight per cent while Bank Muamalat Malaysia Bhd projected a lower target of three to four per cent from five to six per cent set previously.
In the first seven months of this year alone, loan disbursement by the banking system fell by 3.1 per cent to RM598.5 billion from RM617.8 billion in the same period last year.
Professor of Economics at Sunway University Business School, Professor Yeah Kim Leng, said the slowdown in bank lending appeared to have bottomed out in August and September as loan growth stabilised at 4.2 per cent before inching up to 4.5 per cent in October.
At this pace, it is approximately half the average growth chalked up over the past three years, he pointed out.
“The gradual improvement is expected to continue in 2017 where a loan growth of 6-7 per cent is projected on the back on a modest uptick in economic growth, business and consumer demand and lenders' confidence,” he explained.
Loans to corporates were also relatively low during the same period, dampened by sluggish commodity prices, turmoil in regional trade, the volatile ringgit and weak investment activity.
This was reflected by a 1.2 per cent reduction in loan disbursement to the business sector during January-July this year, amounting to RM436 billion against the RM441.1 billion registered in the same period of 2015.
The business sector's loan applications grew by 2.9 per cent to RM219.3 billion but loan approvals dropped by 10 per cent to RM92 billion.
As for ROE, three banks cut their targets for this year, with Maybank trimmming to 10.5-11 per cent from 11-12 per cent set earlier.
CIMB Group had slightly reduced the target to nine per cent from 10 per cent while AMMB Holdings Bhd set a new target of 8.5 to nine per cent for the financial year ending March 31, 2017 from 9.5 per cent projected earlier.
Of corporate significance this year was the regional foray by CIMB Group following the setting up of its subsidiary in Vietnam, with plans to complete its ASEAN footprint by opening a branch in Manila next year.
As for Maybank, it established a triple-A rated RM10 billion sukuk programme this year while its insurance arm, Maybank Ageas Holdings Bhd, signed a deal to acquire a majority stake in Indonesia's general insurance company PT Asuransi Asoka Mas (Asoka).
The year was not without a hiccup with the closure of bank branches following significant changes in technology and regulation in the advent of financial technology (fintech). — Bernama