AVERAGE lending rates are expected to come off slightly, which is not surprising as focus of loans growth is retail driven, said SJ Securities research head Anthony Dass.
In its investment research, Dass said the contractionary liquidity operation was expected to remain intact.
But increasing competition for loans led to a decline in the average lending rates for both commercial banks and finance companies, to 6.48% and 9.81%, respectively, in November 2002, he added.
With ample liquidity in the system and to maintain and stabilise interbank rates, as well as to offset the expansionary impact of government operations and also external operations, Bank Negara's liquidity operations remained contractionary during the month, he said.
On another note, Dass said that growth in overall monetary aggregates remained healthy, underpinned by favourable economic activities.
He said the monetary aggregates were expected to remain favourable.
At the same time, the overall health of the banking system is expected to remain strong, with non-performing loans (NPLs) likely to have eased slightly in December 2002, and the risk-weighted capital ratio (RWCR) and core ratio remaining favourable.
Dass said low and stable interest rates, ample liquidity, favourable economic conditions and conducive environment to support business activities should keep the banking system's loan momentum rolling.
With consumer sentiment still remaining favourable, overall loans outstanding in December 2002 would have improved further, he said.
We are still positive on the banking sector. Hence, our overweight sector recommendation still holds, he said.
The main contributory factors are that NPLs are expected to stabilise in tandem with the improving economic outlook and the progress made on corporate restructuring, while banks would remain resilient, with the RWCR sitting well above the international prescribed Basle ratio of 8%.
Dass said there was still growth potential for the Malaysian banks as they were not excessively priced. Bernama