Malaysian banks cut loan growth targets in face of headwinds

PETALING JAYA: The Malaysian banking sector continues to face headwinds with loan growth expected to slow down as banks progressively cut their lending estimates and project a lower return on equity (ROE) this year amid a challenging economic environment.

Last week, Malayan Banking Bhd (Maybank), the country’s largest bank by assets, cut its 2016 loan growth target to 2-3% from an initial target of 8-9%. The revision came after it registered an annualised loan growth of only 2.9% for Malaysian operations for the first nine months of the year, while its international operations saw a marginal contraction of 2.6% given softer economic conditions.

Maybank’s loan growth and ROE target revisions are premised on its selective asset growth this year, and it is mindful of potential asset quality weakness in a slowing economic growth environment in some of its key operating markets.

In August, other leading banks such as CIMB Group Holdings Bhd had trimmed its loan growth and ROE targets to 6%-7% and 9% respectively, from 10% previously, due to the macroeconomic conditions and the region’s gross domestic product growth. RHB Bank Bhd then also revised its loan growth to 4%-5% this year, from 8%.

AmResearch analyst Kelvin Ong said it is an industry trend that banks are revising (downwards) their targets due to the slow growth.

“This year and next, loan growth will be slower than last year’s, so we don’t expect much improvement in 2017 from the end of this year,” Ong told SunBiz, projecting loan growth to come in at 5-6% in 2016, from 7.9% in 2015.

Moody’s Investors Service vice-president Eugene Tarzimanov said similar to other Asean markets, loan growth in Malaysia will continue to soften in 2017 to a mid-single digit.

“We see more slowdown in loans to corporates, on the back of weak investment activity, low commodity prices and headwinds in regional trade. In contrast, growth in housing mortgages and SMEs will show a bit more resilience, due to good demand for these loans and generally low borrowing costs,” Tarzimanov told SunBiz in an email. 

He said Maybank’s new loan growth target of 2-3% for 2016 is materially lower than its previous 8%-9% guidance, mainly because of a sharper slowdown in regional loan growth – in economies like Singapore and Indonesia.

Maybank’s domestic loan growth target for 2016 was adjusted very moderately to 4-5% from 6-7%, as the domestic economy is growing at a good pace of over 4% in real terms, with good expansion in housing loans.

MIDF Research said with Maybank’s annualised loans and deposit growth (as at the first nine months) way behind its target, expanding only 0.5% and 3.2% respectively, it is not surprised that the management has revised its guidance for FY16.

Last week, Bank Negara Malaysia maintained the Overnight Policy Rate at 3% as the ringgit continues to weaken against the US dollar. It closed at 4.465 against the dollar last Friday.