By Samantha Joseph
Lending indicators for the banking sector have picked up, leading analysts to expect stronger growth for the rest of the year.
In July, loan growth grew by 9.1%, despite measures put into place by Bank Negara Malaysia to dampen borrowing. According to Alliance Research analyst Cheah King Yoong, all three lending indicators improved month-over-month and year-over-year as election-associated lending risks dispersed.
Total applications rose 11% m-o-m (+21% y-o-y) to RM75 billion, driven by higher applications from households (+17% m-o-m; +27% y-o-y), which reached a new high of
RM46 billion on the back of a pickup in applications for both car loans and loans for residential property purchases, observed a report by RHB.
Applications from the business segment rose 4% m-o-m (+12% y-o-y), and similarly, monthly loan approvals rose 5% m-o-m (+14% y-o-y) to RM37 billion, underpinned by stronger household loan approvals (+17% m-o-m; +27% y-o-y). Business loan approvals, however, slipped 11% m-o-m (-4% y-o-y) on lower approvals for working capital loans relating to the mining and quarrying sector.
There might be good news in store for business loans, however, as the loan disbursement for projects under the Economic Transformation Programme are expected to be released within the next few months.
Asset quality has stabilised, with an impaired loan ratio at 2% since December last year. On the other hand, the net impaired loan ratio picked up m-o-m, at 1.4% in July in comparison to 1.3% in June 2013.
“The banking system remains well capitalised, with the total capital ratio, tier 1 capital ratio and common equity tier 1 (CET1) ratio at 13.8% (June: 13.8%), 12.7% (June: 12.6%) and 11.8% (June: 11.8%) respectively. This implies that the domestic banking system is resilient to withstand unanticipated shocks to the financial system, if any,” noted Cheah.
Alliance had downgraded the sector in early August to ‘neutral’ on limited upside potential to target price, less than exciting potential second quarter results, the risk of foreign selling and possible new measures and policy tightening from the authorities later in the year.
CIMB follows suit in maintaining a ‘neutral’ stance, expecting loan growth to match teh 10.6% loan expansion of 2012. However, margin compression and the upturn in credit costs is expected to limit earnings growth.
The research house was positive on Maybank due to expectation of rapid long-term growth in Indonesia, regional expansion and a boost from the implementation of the ETP; Public Bank’s unparalleled asset quality in combination with plans for fee income expansion and RHB Capital’s long-term prospects in investment banking and the underpenetrated Indonesian market make them stocks to watch.
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