PETALING JAYA: Business loans, which have seen a strong growth over the last few months, may experience slower growth in the coming months as companies scale back expansion plans and banks take a cautious lending stance amid a more challenging economic environment.
While business loans came in strong for the month of August, analysts said they were keeping a close tab on its growth over the next few months.
Total loan growth year-on-year (y-o-y) for August stood at 10.2% compared with 9.7% in July.
Based on the latest indicators, business loan growth was fuelled by working capital loans which grew 15.9% y-o-y in August compared with 12.6% in July and 11.4% in June.
The higher demand for working capital lines had in turn contributed to higher business loan growth of 11.5% y-o-y in August from 9.9% in July. Household loans growth continued to moderate to 8.3% y-o-y in August from 8.6% in July.
Analysts who spoke to StarBiz said they did not expect business loans to grow above 11% y-o-y over the subsequent months due to slower economic growth leading to slower business expansion which in turn would see banks taking a cautious approach to lending. Still, business loans are still expected to be the driver of total loans growth but at a slower phase, compared with the declining household loan growth.
World Bank has projected Malaysia’s gross domestic product (GDP) growth to slow to 4.7% in 2015 from 6% last year on a potential slowdown in China’s economy, an impending hike in US interest rate and weak commodity prices.
Meanwhile, Japanese investment bank Nomura is of the view that Malaysia’s GDP growth would slow to 5% this year after last year’s 6%, and then slowing further to 4.3% in 2016.
The weak ringgit is affecting sentiment on current and future prospects. Dun & Bradstreet Malaysia in a release noted that the weak ringgit was going to make things more difficult for businesses as the US dollar was the currency of choice in most global trades Malaysians have with the outside world.
Analysts said the strong business loans growth in August was not a true reflection of the actual demand for businesses.
Maybank IB Research analyst Desmond Ch’ng, who is maintaining a neutral stance on the banking sector, said the pick-up in demand for working capital lines may have been driven by initial teething problems with the implementation of the good and services tax (GST) from April 1, which had caused delays in GST refunds.
“As such, companies with resultant tight cashflows had resorted to drawing down working capital lines to tide themselves over. Another possible contributory reason to this faster growth could also be the weakening of the ringgit and the rise in input costs during the period,” he noted.
UOB Kay Hian banking analyst Keith Wee, who is maintaining a market weight on the sector, said strong business loan growth may not be a reflection of actual optimism.
“The segments of business loans which exhibited robust growth were wholesale retail trade and real estate, both of which are facing industry headwinds.
“As such, we opine that the strength of growth could be a sign of cashflow constraints emanating from a combination of operational bottlenecks from GST refunds and a challenging growth environment rather than a reflection of genuine robust business volume demand growth. This renders the strong loan growth unsustainable,” he said.