PETALING JAYA: The Malaysian banking industry’s loan growth has proven to be resilient during the movement control order period, registering a growth of 3.9% year on year (yoy) at the end of May, compared with 4% yoy at end-April, as the 25.8% y-o-y drop in loan disbursements in May was largely offset by a 22.3% decline in loan repayment thanks to the loan moratorium.
Household and non-household loans expanded by 3.2% yoy and 4.9% yoy, respectively, at end-May.
CGS CIMB said in a note that the industry’s total loans expanded by 1% in the first five months of 2020, above its projected loan growth of zero per cent for 2020.
“However, we still see the risk of a slowdown in loan growth in upcoming months due to the gloomy economic environment, as reflected by our economist’s projected decline of 4.3% in 2020 GDP,” it said.
The industry’s gross impaired loan (GIL) ratio improved from 1.58% as at end-April to 1.55% at end-May. However, banks’ total provision rose by RM486.5 million in May, lifted by additional pre-emptive provisioning by banks against the potential risks from Covid-19 on their asset quality.
“Banks’ total provision rose by RM1.64 billion in the first two months of 2Q’20, even higher than the RM1.14 billion increase in 1Q’20. With this, we think that banks’ 2Q’20 loan loss provisioning (LLP) would be higher than the level in 1Q’20, which could drag down their earnings growth in 2Q’20, unless there is a month on month material decline in total provision in Jun 20,” it said.
The research house is maintaining its neutral call on the sector, with Public Bank Bhd as its top pick. The potential upside/downside risks to its call are an improve-ment/deterioration in loan growth and asset quality.
“We have factored in total Overnight Policy Rate cuts of 125 basis points (bp) into our earnings forecasts for banks and, hence, another downside risk would be OPR cuts exceeding 125bp in 2020F.,” it added.