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Malaysian business and households borrowing less
PETALING JAYA: New loan applications by Malaysian businesses and households have been continuously falling over the past few months, indicating a weakening sentiment in the domestic economy.
With loan growth being a key determinant of the banking sector’s performance, the softening loan growth trend has led analysts to remain generally neutral on the outlook of the banking sector, which is the bedrock of the Malaysian economy.
The industry’s modest earnings growth was also another reason behind the neutral sentiment on the banking sector.
Citing Bank Negara’s data, UOBKayHian Malaysia Research said new loan applications contracted by 6% year-on-year (y-o-y) in March, although loan approvals expanded by 6.3% y-o-y in the same month.
Business loan applications were hit the most, as they declined by 8.5% in March following a drop of 7.9% and 20.5% in January and February, respectively.
New loan applications by businesses in the country have been contracting for six consecutive months on a year-on-year basis.
Meanwhile, Malaysian households’ loan application fell by 3.9% y-o-y in March.
Moving forward, UOBKayHian Malaysia Research believes the revival of mega infrastructure projects will likely benefit banks that have strong corporate loans.
“As the overall consumer and SME sentiment is likely to remain subdued for most of 2019, we believe the market will initially favour banks with strong corporate loans by pricing in stronger loan growth for such banks (CIMB, Maybank and RHB Bank) in 2019 on the back of the revival of a number of mega infrastructure projects.
“In this space, we like CIMB for its attractive valuations and stable asset quality,” the brokerage said in a research note.
In a separate note, CIMB Research expects the industry’s loan growth to recover in the second quarter of 2019 following the rebound in loan approvals in March.
However, it added that the growth may not be sustainable as loan applications in March this year remained weak.
“We stick to our projected loan growth of circa 5% for 2019. We continue to rate Malaysian banks as “neutral” given the concerns over margin erosion and an expected uptick in credit costs,” said the research house.
On the other hand, MIDF Research has maintained its “positive” view on the industry, pointing out that most banks under its coverage are currently undervalued following the recent sell-off on banking stocks.
“At current juncture, we believe the banking sector will be able to continue its earnings momentum despite the pressure on margin due to continued loans growth.
“Meanwhile, stable asset quality will contain banks’ provision levels,” it said.
MIDF Research also said the current price levels of banking stocks present a good opportunity to investors.
Source: https://www.thestar.com.my/business/business-news/2019/05/03/malaysian-business-and-households-borrowing-less/#vW5yM0VQoKPDRgwq.99