More banks are issuing debt notes to be Basel III compliant
PETALING JAYA: The banking sector which saw its latest loan growth figure slowing to 5.1% year-on-year (y-o-y) in July from 5.6% y-o-y in June may see a pick-up in loan growth for the remaining year from the recent 25 basis points cut in the overnight policy rate (OPR).
Bank Negara last month unexpectedly cut the OPR by 25 basis points to 3.0% to stimulate the country’s economy which analysts opined would support credit growth for the year.
Affin Hwang Capital Research said on Thursday subsequent to the OPR cut, weighted average base rate of commercial banks during the month had decreased by 21 basis points (bps) while fixed deposit rates for tenures 1 year and below also declined by an average of 18bps.
“We believe that this is positive for business loans growth, especially with the expected commencement of some major infrastructure projects in the second half of the year. Meanwhile, household loans will likely see a boost to the subdued growth, despite cautious-lending at most banks in order to preserve asset quality,’’ it noted.
While current loan growth forecast of 6.0% for 2016 (based on 6.4% growth from the household sector and 5.5% from business sectors) remains challenging, the research house believe the general strength in the domestic economy, with a low unemployment rate of 3.4% (June 2016), coupled with sufficient liquidity in the banking system and a more accommodative monetary policy should continue to support credit growth for the year.
Total loans stood at RM1,467.3bil in July with growth moderating to 5.1% y-o-y from 5.6% y-o-y in June. On a month-on-month (m-o-m) comparison, growth moderated downwards to 0.1% from June’s 0.5% on the back of weaker working capital and construction loans disbursements.
Kenanga Research said it was maintaining its view on banking system’s loan growth of 5%-6% for the year supported by the OPR cut which would see a pick-up in annualised loan growth.
Meanwhile, UOB-Kay Hian Research added that given the challenging environment and judging from the current negative loan approval trends, it felt that overall 2016 loans growth could come in closer to the 4.0%-4.5% range. It noted that consumer loan-centric banks like BIMB and Public Bank with high loans loss coverage (LLC) buffers are likely to be better positioned in the current credit cycle while AMMB, Affin and Maybank could face negative provision headwinds.
Loans approval remained weak, contracting 19.4% y-o-y in July. Only loans for the purchase of non-residential property and construction registered positive approval growth.
Household loans approval continued to register a contraction (-20.8% y-o-y), marking the 18th consecutive month of approval contraction stemming from residential property (-21.5% y-o-y) and auto loans (-24.9% y-o-y).
The slight improvement in loans approval rate at 44% versus 39% in June was largely masked by a sharply lower loans application trend (-19% y-o-y) versus the previous months’ 3-5% approval growth.
Gross impaired loans balance rose 9.5% y-o-y in July (June 16: +8.1% y-o-y) pushing gross impaired loans ratio upwards to 1.68% from 1.66% in June. Working capital (+19.2% y-o-y) and non-residential property (+19.9% y-o-y) were the key areas of weakness. LLC declined further to 88.7% from 89.5% in June.
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