PETALING JAYA: Affin Hwang Capital is keeping its 2019’s loan growth target of 3.8% year-on-year (yoy) unchanged, as it expects a pick-up in the fourth quarter of 2019 driven primarily by drawdown of construction-related project loans as well as residential property loans.
This is despite sluggish loan growth of 2.4% year-to-date as at September, with a month-on-month (mom) growth of 0.5% and yoy growth at 3.8%. On an annualised basis, the system loan growth stood at a fairly muted 3.3% growth, as business and consumer sentiment remained cautious.
“We believe that overall downside risks are cushioned by the broad-based economy, resilient domestic consumption spending and a low unemployment rate of 3.3% (in August),” said the research house.
It said the banking system liquidity remains healthy and ample and the commercial banks’ average lending rate edged down further, post-Overnight Policy Rate (OPR) cut.
“We expect banks’ funding costs to ease following the OPR cut, as most banks have an average fixed deposit maturity of between six to nine months. We expect the overall banking system net interest margin (NIM) to edge down by 9bps in 2019 to 2.20%, stemming from weak asset yields and overall higher funding cost.”
It added that the outstanding non-performing loans was up 11.6% on a year-to-date basis (with a mom increase of 0.9%) was driven primarily by the business working capital, residential and commercial property segments. Other economic sectors accounting for the bulk in system impaired loans include agriculture, business services, household, wholesale/retail/restaurant, construction, manufacturing and transportation.
“We note that amidst moderating global growth, oil prices are holding up, which should be positive for Malaysia’s GDP. Affin’s economics team expects the economy to be supported by the private sector from capacity expansion, consumption spending and potentially a gradual recovery in commodity output.”
It maintained a neutral call on the banking sector, with RHB Bank Bhd and Aeon Credit Service (M) Bhd as its top picks.
Key downside risks to its sector call are further cuts in the OPR (further NIM compression), moderation in loan growth, new NPL formation (with respect to commercial property, residential property, agriculture and construction loans) and higher overheads. Upside risks include a recovery in global growth.
