Analysts positive on loans growth prospects

PETALING JAYA: Analysts remain positive on loan growth prospects on the back of the positive turn in loans applied and approved, despite a moderation in loan growth in February.
Loan growth decelerated to 5.3% year-on-year (yoy) in February, due to shorter working days, which halted the five straight months of improvement. The moderation was caused by slower household loan growth of 5.1% while business loan was unchanged at 5.4%.
Nonetheless, there was a positive turn in demand for loans, growing by 21.2% yoy in February as compared with an 8.4% yoy decline in January, which marked the first growth in loans applied since July 2016.
Correspondingly, loans approval also had a strong positive turn as it grew 17.4% yoy from -5.1% yoy in January.
MIDF Research noted the positive turn in loans applied and approved may translate to better growth in loans in the coming months.
"This is on the premise that our economics team are expecting Malaysia's GDP to pick up in CY17, which will have a positive impact to the banking sector. We believe that the green shoots remains with a recent upturn in loans demand and approval," it said.
Hong Leong Investment Bank (HLIB) Research in turn maintained 2017 loan growth forecast at 6%, supported mainly by business segment that will capitalise on the development spending as well as recovery in the small and medium enterprise (SME) segment.
It expects the banking sector to post earnings recovery in 2017, on the back of higher loan growth expectations, stable contribution from non-interest income, continued discipline on expenses as well as the ending of impairment programme.
The sector's loan loss coverage is also projected to improve in 2017 given the slower trend of large provision.
"Bank Negara's measures to mandate conversion of export proceeds may eventually help to increase system liquidity," it opined.
HLIB Research is maintaining a neutral stance on the banking sector due to the modest growth outlook for earnings, loan and deposit growth.
"The modest earnings growth will result in lower ROE (return on equity) and lower the expected return," it added.
MIDF Research, which has a positive stance on the banking sector, said the competition for loans and deposits has not affected the pricing given that the average lending rate in February was seven basis points higher than January, while savings deposit rate was at 0.97%.
"We believe that if this environment persists, the sector will only face a slight compression in NIM (net interest margin) this year," it opined.
The research house also highlighted that asset quality in the banking system has remained stable with prudent behaviour in lending activities. This is evident by the gross impaired loan ratio coming in steady at around 1.6%.