Banks’ outlook perk up as FY16 results largely in line
KUALA LUMP UR: The recentlyconcluded results season for the financial year 2016 (FY16) showed an uptick in banks’ performances, with loans growth and business loans growing building momentum into 2017.
Statistics from MIDF Amanah Investment Bank Bhd (MIDF Research) showed a “lingering sense of optimism” on the banking sector as their figures and the recently-concluded 4QCY16 results hint that there could be a buildup in momentum into the rest of CY17.
“Banking system loans growth appears to be on an uptrend. Loans growth for the banking system as at January 2017 grew at a faster pace than the previous six month period at 5.6 per cent year on year (y-o-y) to RM1.52 trillion,” it explained.
“This suggest that loans growth is continuing to inch higher, a trend which began in October 2016.”
Interestingly, MIDF Research noted that working capital loans uptrend was more pronounced as it grew 6.3 per cent y-o-y as at January 2017 from a low of 1.5 per cent y-o-y as at August 2016.
“We take working capital loans as a proxy for overall business borrowing,” it said.
“The acceleration in growth suggests that businesses are more confident of the immediate term prospect.
“Indeed, RAM Business Confidence Index by RAM Holdings Berhad and RAM Credit Information Sdn Bhd showed that corporates and SMEs are optimistic about the business outlook in the first half of 2017 (1HCY17) at 56.9 points and 53.2 points respectively.”
MIDF Research believed loans growth will rebound in CY17 as its economics team are expecting Malaysia’s gross domestic product (GDP) to pick up in CY17.
“The expected better economic performance will have a positive impact to the banking sector. Hence, we expect loans growth to rebound in CY17. We believe that we have already started to see the green shoots with working capital loans trending higher.”
Meanwhile, it remained apaprent that the competition for loans and deposits have not affected pricing. Average lending rate in January 2017 was five basis points higher from December 2016, while savings deposit rate fell by one basis point.
Fixed deposits were generally stable except 12 month deposits which increased by only two basis points month on month.
“We view this as positive as it will ease the pressure on margin compression. If this environment persists, we expect only a slight compression in NIM but overall will be stable in CY17,” it added.
“Liquidity is still ample, while asset quality stable. It is understandable that we have yet to see faster acceleration of loans growth. We understand that banks have been very cautious in its lending activities to protect asset quality.
“Indeed, the Guaranteed Instalment Loan (GIL) ratio for the banking system has been steady at around the 1.61 per cent level, while for banks under our coverage it had been stabilising at 1.7 per cent. In addition, loans deposit ratio of 90.6 per cent as at January 2017 also suggests a need for this cautiousness.
“However, the deposits growth and especially CASA growth implies that liquidity is ample. In fact, another measure of liquidity which is the Liquidity Coverage Ratio (LCR) shows that banks have sufficient liquidity.
“The latest LCR as at December 2016 was 125 per cent, up nine percentage points from November 2016. Therefore, we opine that banks could well accelerate lending activities should it needs to.”