HLIB Research sticks to 6% loan growth forecast for banking sector

PETALING JAYA: HLIB Research is maintaining its 2017 loan growth forecast at 6.0% year-on-year (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,” the research house said in a report yesterday. It expects banks’ loan loss coverage to improve in 2017 given the slower trend of large provision.
“Bank Negara Malaysia’s measures to mandate conversion of export proceeds may eventually help to increase system liquidity,” added HLIB.
The banking sector started the year with encouraging signs, posting higher loan growth of 5.6% year-on-year, with business loans accelerating for five consecutive months. Household loan growth moderated slightly to 5.2% year-on-year.
Loan applications and loan approvals continued to show mixed trend, with loan application falling further to -8.4% yoy while decline in approvals slowed to -5.1% yoy. There were a few positive signs emerging in the business segment.
Banking system deposits grew further to RM1.7 trillion, rising by 2.6% yoy underpinned by demand deposit that rose 4% yoy and saving deposit by 9% yoy.
“We keep our neutral stance on the banking sector due to modest growth outlook for earnings, loan and deposit growth. The modest earnings growth will result in lowerreturn on equity and lower the expected return,” said HLIB.
Its top picks are Malayan Banking Bhd, BIMB Holdings Bhd and Alliance Financial Group Bhd.