PETALING JAYA: Analysts are divided over the impact of the 14th general election (GE14) on loan growth.
While some expected the return of confidence under the Pakatan Harapan-led government resulting in robust loan growth in the second half of the year, others saw policy uncertainties leading to slower expansion in lending.
CIMB Research expected the banking sector to register slower loan growth from next month.
“We expect the industry’s loan growth to pick up to slightly above 5% year-on-year (y-o-y) in July and August, mainly supported by the improvement in the auto loan momentum,” the brokerage said in its report yesterday.
“However, we think loan growth could start to ease from September, as the growth in car sales could fizzle out upon the introduction of the sales and service tax, and weaker demand for business loans, given the uncertainties arising from the potential policy changes by the government,” it added.
CIMB Research has retained its projected loan growth for the industry at 4%-5% for this year.
The banking sector saw loan growth increase slightly to 5% y-o-y in June from 4.9% y-o-y in May, with improvements in both business and household loans.
However, CIMB Research noted: “We are slightly negative on the June statistics due to the slowdown in the growth for residential mortgages, which was the key driver for the industry’s loan growth in the past two to three years.
“Weak loan growth and concerns over margin contraction are the reasons for us to retain our ‘neutral’ call on banks,” it said, adding that RHB Bank Bhd was its top pick.
Affin Hwang Capital Research expected improving confidence to lead to robust loan growth in the second half of this year compared with the first half.
The brokerage has maintained its loan growth target at 5%.
“We reiterate our view that post-GE14, business and consumer confidence will gradually improve on the back of more certainty with respect to the new government’s policies, which remain pro-business and pro-socio economic growth,” said Affin Hwang Capital Research.
“We note that an improving global economic outlook and relatively stronger commodity prices are favouring a rebound in banking sector earnings in 2018,” it added.
According to UOB Kay Hian Research, it is too early to gauge the impact of loan growth post-GE14, as potentially stronger auto and consumer durables loan growth would be partially offset by slower construction and government-related corporate loan growth.
“Post-GE14, macro policy uncertainty could have a slight dampening effect on overall sector growth and hence result in downside risk to earnings.
“Given this scenario, we advocate a two-pronged strategy to navigate the potentially volatile near-term sector outlook with a focus on banking stocks with defensive earnings qualities, and those that have been excessively sold down due to sentiment rather than material changes in fundamentals,” it added.
UOB Kay Hian Research has retained its 2018 loan growth target of 5%-5.5%, with growth likely to be at the lower end of its forecast range.
“Loan approval growth was steady at 5.4% y-o-y, but largely driven by a spike in auto loan approval as the zero-rated goods and services tax took effect. Excluding this lumpy effect, overall loan approval would have declined 3% y-o-y,” it explained.
It has maintained its “market weight” outlook on the sector, as the slight downside risk to growth is balanced by stable asset quality and provision trends.
Its top pick was Public Bank Bhd for its defensive qualities and status as a proxy to the consumer and SME segments.