Banks loan growth picked up slightly in August, CIMB Research keeps Neutral call

Banks were among the gainers on Bursa Malaysia on Tuesday.

KUALA LUMPUR: The banking industry’s loan growth picked up slightly from 5.6% year-on-year at end-July 2017 to 5.8% year-on-year at end-August 2017, says CIMB Equities Research.

The research house said on Monday the improvement mainly came from the business loan segment, with an expansion of 7.2% year-on-year at end-August 2017 vs. 6.7% year-on-year at end-July 2017. 

Meanwhile, the expansion in household loans eased marginally from 5.1% year-on-year at end-July 2017 to 5% year-on-year at end-August 2017. 

“We forecast year-on-year loan growth to trend downwards for the full year of 2017 given the much higher base in December 2016 (vs. August 2016),” it said.  

For January-August, industry’s loan base grew by 2.4%, translating into an annualised rate of only 3.5% for 2017. 

“We project stronger month-on-month loan momentum towards the year-end and remain confident that the banking industry is on track to achieve our loan growth projection of 4%-5% for 2017. However, this is lower than 2016’s loan growth of 5.3%,” it said.  

CIMB Research noted that growth in both loan applications and approvals for the industry moderated to 4% year-on-year and 10% year-on-year, respectively, in August 17, down from double-digit rates in July 2017. 

“We are disappointed that the growth for the indicators of all three major loan segments, i.e. residential mortgages, auto loans and working capital loans, weakened in August 2017. 

“This may dim the prospects for a strong recovery in the industry’s loan growth in the coming months,” it said.   

The research house said the industry’s gross impaired loan ratio inched down from 1.68% at end-Jul 17 to 1.67% at end-August 2017 while loan loss coverage was largely stable at 81.4% at end-August 2017 (vs. 81.3% at end-July 2017). 

It projected a gross impaired loan ratio of 2% for end-2017.  

“We retain our Neutral call on banks given the potential negative impact from the adoption of MFRS 9 in 2018 and unattractive valuations. 

“Potential upside risks to our call are a pick-up in loan growth and expansion in margins. 

“On the other hand, the potential downside risks to our call include a rise in banks’ loan loss provisioning upon the adoption of MFRS 9 in 2018,” it said.