Auto loans turnaround bodes well for banking sector

PETALING JAYA: Analysts are positive on the banking sector as the latest data strengthen the conviction of a recovery in loans growth and overall banking sector in 2017.
“This is especially so, as there was a turnaround in auto loans. While loans demand fell in June, we understand that this was due to the impact of the festivities. Taking everything into consideration, we do not see a reason to change our view of a better performance in 2017, driven by higher loans growth and stable margins. We continue to be positive on the sector,” MIDF Research said in a report yesterday.
The loans growth for the banking system grew at a faster pace in June 2017 at +5.7% year-on-year (y-o-y) to RM1.55 trillion. There was an acceleration of loans for the purchase of residential properties and working capital.
“We note that this was the eighth consecutive month in which loans growth had registered above the +5.0% level, while average loans growth was +5.7% y-o-y for 1H17.”
As anticipated, auto loans will make a turnaround after seeing better total industry volume (TIV) number this year. Loans for purchase of transport vehicles grew +1.4% y-o-y to RM170.5 billion as at June 2017. Comparatively, it had been on a downtrend for 11 consecutive months, with the last being a decline of -0.2% y-o-y in May 2017.
“We do not see a reason for us to change our loans growth expectation at current juncture. This is especially so, as we saw a turnaround in auto loans and acceleration in mortgage and working capital loans. We maintain our mid-to-high single digit loans growth expectation for 2017.”
It expects only minimal net NIM pressure for the rest of the year and does not foresee any sudden deterioration in asset quality for 2017.
MIDF maintained its “buy” calls for Malayan Banking Bhd (Maybank), Public Bank Bhd and Affin Holdings Bhd.
“We continue to like Maybank as we expect it to continue its earnings recovery coupled with solid asset growth, and due to its regional exposure. While our ‘buy’ call for Affin is premised on its turnaround program showing results. Our other ‘buy’ call is Public Bank due to its good asset quality and sustained profitability.”
Meanwhile, Affin Hwang Capital maintained its banking sector “overweight” call. It foresee sector-earnings growth of 10.6% y-o-y in 2017, followed by a more modest 3.8% y-o-y in 2018 and 4.1% y-o-y in 2019. Favourable domestic demographic trends (driving consumption and housing needs), ample infrastructure projects in the pipeline and accommodative monetary policy are supportive reasons for the growth in earnings.
Its top picks are Public Bank, CIMB Group Holdings Bhd and Maybank.
“For sector exposure, we continue to like Public Bank given the group’s more stringent credit underwriting standards and established franchise in the domestic retail financing markets.
“For CIMB, it expects 2017 earnings to continue improving from 2016 levels, growing 31% y-o-y, after a trough period in 2014-15. In our view, the heightened provisions seen in 2014-16 may subside in 2017, while stronger loan growth and steady NIM should be key earning drivers.
“For Maybank, we foresee a better year underpinned by robust fund-based income generation, while NIM is expected to remain steady. Asset quality is also expected to improve as global headwinds ease, while its Indonesian unit is also showing signs of a turnaround.