The 25 basis point increase in the Overnight Policy Rate (OPR) will benefit fixed deposit (FD) savers after the real rate of return on deposits will return to positive in 2018.
KUALA LUMPUR: CIMB Equities Research is retaining its neutral call on banks due to the weak loan growth.
It said on Monday although the industry’s loan growth improved to 4.8% year-on-year at end-April 2018, it would take a long time to recover to the historical growth of 8%-9% before the collapse in 2016.
“Furthermore, following the surge in share prices in the past one year, the valuations of most of the bigger banks (except for RHB Bank) are less attractive, with their CY19 P/E at more than one standard deviation above the five-year average. RHB Bank remains our top pick for the sector,” it said.
The industry’s loan growth improved further from 4.4% year-on-year at end-March 2018 to 4.8% year-on-year at end-April 2018. This was mainly due to the recovery in business loan growth from 1.9% year-on-year at end-March 2018 to 3.1% year-on-year at end-April 2018.
Meanwhile, the momentum in household loans inched up from 5.6% year-on-year at end-March 2018 to 5.7% year-on-year at end-April 18. The biggest loan segment, residential mortgages, which accounted for one-third of the industry’s total loans, sustained its momentum of 8.9% year-on-year at end-Mar 18 to the same at end-Apr 18.
Malaysian banks’ loan base expanded by 1.6% in 4M18, translating into an annualized rate of 4.8%. This was in line with our projected loan growth of 4%-5% for 2018.
The growth in the industry’s loan applications and loan approvals rebounded strongly to 20.1% year-on-year and 21.6% year-on-year, respectively, in April 2018.
This was underpinned by the reversal of the year-on-year declines in the residential mortgages and auto loan segments in March 2018 to growth of 6%-9% year-on-year in April 2018 as well as the stronger momentum in the working capital loan segment. This augurs well for loan growth in the next two to three months.
The industry’s gross impaired loan ratio inched up from 1.57% at end-March 2018 to 1.58% at end-April 2018 while the loan loss coverage increased from 93.9% at end-March 2018 to 95% at end-April 2018.
“We are projecting a gross impaired loan ratio of 1.8% for end-2018F,” it said.
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