Thailand
Malaysia: Loan growth heads south
PETALING JAYA: Following softer than expected loan growth in November, 2017 loan growth target for some banks may not be met. However, the banking sector could see stronger demand for financing in 2018, say analysts.
According to Maybank IB Research, all hopes of a stronger rebound in loan growth towards year-end has been dashed, with industry loan growth hitting a low of 3.9% year-on-year (yoy) in November 2017.
“Much as some of the larger banks had been guiding for a pick-up in corporate drawdowns, this has failed to materialise, with non-household (non-HH) loan growth slowing to just 2.3% y-o-y in November from 4.1% y-o-y in October.
“Household loan growth was nevertheless stable at 5.1% yoy. On an annualised basis, Nov 2017 loan growth was just 3.3%, with non-HH loan growth slumping to 1.1% but positively, household loan growth maintained an uptrend, expanding 4.9% on an annualised basis versus 4.5% in Oct 2017,” the research house said.
On the other hand, total bond issuances during the period, jumped 36% yoy, including which, total industry credit expanded at a decent pace of 5.5% yoy.
Trends in loan applications and approvals remain positive, picking up pace in November. Most notable is the fact that working capital loan applications have finally turned positive, up 3.9% yoy in November on a three-month moving average basis, having contracted for the 17 consecutive months, said the research house.
“Interestingly, deposit growth (which grew 4.7% y-o-y in November) has maintained a steady upward trend and as a result, total system deposit growth has now caught up with, and is now expanding at a faster rate than loan growth, for the first time since 2012.”
TA Research in its report loan growth for the month of November appeared have eased at a faster pace than expected despite broad-based strength in the economy and should fall short of its assumption of 5.6% for the whole year.
“We also believe 2017 loan growth targets for most of the banking groups under our coverage may not be met.”
“As 2017 comes to a close, the sector continues to surprise us on several fronts, namely that loan growth has not risen as strongly in tandem with gross domestic product and business loans remained soft despite the improvement in optimism.
On the other hand, consumer asset quality remains resilient, defying expectations of some deterioration,” it said.
Meanwhile, MIDF Research believes that loans growth, at best, will be grow at 5% yoy for this year.
“However, judging from the current trend of loans applied and approval, expect that loans growth will pick up in 2018.
“The loans applied and approval will provide a steady loans pipeline at least in the first quarter of calender year 2018,” it said.
It added that it expects loans demand to continue on its current trend, especially for the mortgage segment as it understood several property developers are targeting to develop affordable housing.
“As such, we are expecting a loan growth of 6% y-o-y for 2018.
“In addition, the anticipated overnight policy rate hike by Bank Negara will give a temporary boost in margin. With higher demand and approval for loans, we believe the banking sector will be able to maintain its earnings potential,” it noted in its report.
Among the key risks to look out for is the formation of new non performing loans should there be a local interest rate hike and implementation of accounting standards MFRS9 which could entail higher levels of provisions, said analysts.
Source: https://www.thestar.com.my/business/business-news/2018/01/03/loan-growth-heads-south/#pQ6v4oOUdlvZqkVQ.99