Loan growth easing but looking favourable ahead

PETALING JAYA: Despite the hiccup in loan growth momentum that eased slightly in July by 10 basis points from the previous month to 5.6% year-on-year (yoy), demand was up with approvals picking up yoy, indicating favourable pick-up in loans ahead, said Kenanga Research.
It said business loans are also likely to pick up pace on easing of approvals as asset quality appears to be contained.
The research house said its view of moderate loans growth ahead still stands with system loans expected to grow between 5.5% and 6.0% for 2017. Growth will be supported by the resilient household as cost-push inflation is expected to be contained in 2H17.
“The rise in applications beckons a positive momentum ahead as both business and households’ applications picked up. The rise in approvals for both business and household is encouraging and we expect conditions to be favourable going forward as asset quality looks to be improving,” it added.
With excess liquidity easing, it opined that net interest margin (NIM) compression will be mild as banks will be able to adjust their lending rates as demand accelerates, as seen in the surge in average lending rates for July.
“We still see limited catalyst to drive earnings growth for the industry materially beyond our current expectation of a mid-to-high single-digit growth.”
Kenanga Research reiterated its “neutral” call on the banking sector as it sees no change in the prevailing conditions ahead. There is no concrete catalyst and game changer on the horizon and structural and cyclical headwinds are still prevailing such as moderating economy, subdued loans growth and downward pressure on NIM.
HLIB Research maintained its 2017 loan growth forecast at 6.0% yoy, supported mainly by business segment that will capitalise on the development spending as well as recovery in the SME segment.
“We expect banks to post earnings recovery in 2017, on the back of higher loan growth expectations, stable contribution from non-interest income, continued discipline on expenses, and ending of impairment programme.”
It stayed neutral on the sector due to the uncertainty of MFRS9 implementation on bank earnings. Various liquidity measures are also expected to put more pressure to bank net interest margin.
HLIB’s top picks are Malayan Banking Bhd, AMMB and BIMB Holdings Bhd.