Neutral outlook seen for banking sector

  • Banking
  • Thursday, 07 Feb 2019

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.

PETALING JAYA: The outlook for the banking sector this year is largely neutral, with analysts citing the prevailing uncertainties on the domestic as well as external fronts.

Also highlighted, in the research reports, are concerns over the possible deterioration in loan growth and asset quality in 2019.

Loan growth for the year, meanwhile, is generally expected to be at or below 5%.

The industry’s loan growth moderated from 6.2% year-on-year (y-o-y) at end-November 2018 to 5.6% y-o-y at end-December 2018.

CGS-CIMB Research noted that this was the first pullback in loan growth since March 2018.

The slowdown came mainly from the business loan segment, with an expansion of 5.4% y-o-y at end-December 2018 compared to 6.3% at end-November 18.

The momentum for household loans, however, inched down from 5.7% to 5.6% y-o-y for the same period.

Despite the slowdown in December, the research house said the industry’s loan growth for 2018 of 5.6% was above its projected 4%-5% for the year.

It was also the strongest performance since the 7.9% achieved in 2015.

Moving forward, CGS-CIMB sees headwinds for banks’ loan growth in 2019, arising from the slower economic growth and US-China trade tensions.

As such, it is projecting a slower loan growth of about 5% for 2019.

“Given concerns over the possible deterioration in loan growth and asset quality in 2019, we continue to rate banks a neutral.

“On a positive note, the sector’s dividend yield is attractive at a projected 4% for 2019,” the research house said, with RHB Bank Bhd remaining its top pick for the sector.

Also keeping its neutral stance unchanged was Kenanga Research, which expects loan growth to be challenging in 2019, in view of prevailing uncertainties.

“Loans should be supported by resilient households on account of accommodative interest rates and stable asset quality,” it said, noting that it expects loan growth to be below 5%.

Household demand, it said, would be supported by stable employment and wages, with inflation looking subdued.

It added that the consistently improving asset quality would see banks having a healthier appetite for household loans.

“We would not be surprised if competitive lending rates resurface (in order to prop up demand), putting downside pressure on net interest margins,” it said.

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