KUALA LUMPUR: Analysts are cautious on the banking sector with a slight loan growth due to tight loan approval, in line with the Bank Negara’s ruling to rein in inflationary pressure.
Kenanga Research estimated the system loan growth for 2018 is expected between 5.0 per cent and 5.5 per cent, driven by corporate loans as the concerns of the interest rate hike recently abate.
“We expect moderating household loans for 2018 due to the recent overnight policy rate (OPR) hike coupled with tight approval rate for retails loans.
“We expect net interest margins (NIMs) compression to be subdued and flattish given that most of the banks have reached the required regulatory requirements for liquidity coverage ratio (LCR) and net stable funding ratio (NSFR).
Kenanga said the banking sector total loan amount for 2017 grew 4.1 per cent Year-on-Year (YoY), below its expectation of about five per cent system growth, and slower than growth rate of 5.3 per cent in 2016.
“Given that leading indicators are showing softening ahead we view that banks will still be cautious on asset quality with tight approval rates due to the recent OPR hike.”
It has maintained a ‘neutral’ call for the banking sector citing that the banking stocks maintained at market perform with the exception of target price of Affin Bank Bhd at RM2.75, BIMB Holdings Bhd at RM4.54, which are rated as outperform, while Hong Leong Bank Bhd at RM15.25, maintained at underperform.
The research firm said the overall financing in the system for the banks and development financial institutions improved by 60 basis points and increased 6.4 per cent YoY at RM2.30 billion, supported strong growth in corporate bonds rose 15.4 per cent YoY with loans grew at 3.8 per cent YoY.
Household loans continued to be resilient and increased 6.4 per cent YoY driven by residential mortgages at a flattish increased 8.9 per cent, while hire purchase continued its downward trend sliding by another 10bps to 0.6 per cent YoY.
Personal financing for December slid by another 30bps to 4.1 per cent YoY, but credit card usage improved by another 20bps to an increase of 3.0 per cent YoY.
Loans for the business segment also improved by another 40bps with an increase of 2.0 per cent YoY, underpinned by loans to construction increased 4.6 per cent but mitigated by moderation in working capital and further dip in loans for the purchase of fixed assets other than land and building.
Moving forward, the research house said it expects the banking growth prospect remains mixed, nothing that loan application for December fell by 2.1 per cent YoY, dragged by the business segment falling by 9.5 per cent YoY.
Meanwhile, household loan applications slowed to 5.1 per cent YoY with working capital applications decreased 10.7 per cent YoY and purchase of transport vehicles lowered 83.4 per cent YoY, dragged the business applications.
It said moderation in the household segment was attributed to falling applications for hire purchase which continued its downtrend falling by 11.5 per cent YoY supported by slowdown in both residential property and personal financing applications.