CGS-CIMB Research: Banks loan growth to ease from September

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: The banking industry’s loan growth picked up from 4.4% year-on-year (y-o-y) at end-March 2018 to 5% y-o-y at end-June 2018. 

CGS-CIMB Research expects loan momentum to remain strong until August 2018 as the zero-rating of the goods and services tax (GST) boosted auto sales and narrowed the contraction in auto loans. 

However, it said auto sales could taper off in September when the government implements the sales and services tax (SST). 

“Hence, we think that loan growth could trend downwards from September to end-December 2018,” it said, adding that it maintained its projected loan growth of 4% to 5% for 2018.

The research house said the negative surprise in banks’ financial results for the second quarter was the 1.5% y-o-y drop in operating revenue. 

At the topline, net interest income slid by 3.1% y-o-y in Q2’18 under the pressure of margin contraction arising from stiff competition for deposits.

Non-interest income also fell by 9.2% y-o-y in Q2’18, owing to lower investment income and weak expansion in fee income. 

It noted that lower revenue was the key reason for the deceleration in banks’ core net profit growth from 9.7% y-o-y in Q1’18 to 6.3% y-o-y in Q2’18.

Moving forward, the research house is forecasting net profit growth of 7.5% for 2018, slower than the 8.3% in 2017. 

At the topline, it expects an expansion of 5.9% in net interest income and 11.5% in non-interest income in 2018. 

“In view of the unfavourable operating environment, we remain Neutral on banks. 

“RHB Bank is still our top pick for the sector,” it said.
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