Fitch Solutions sees loan growth slowing to 4.5%

  • Business
  • Tuesday, 09 Jul 2019

RHB Bank remains its top pick for the sector, CIMB Research said

KUALA LUMPUR: Fitch Solutions Macro Research forecasts loan growth in Malaysia to slow to 4.5% in 2019 from 5.6% in 2018, weighed down by households.

It said on Tuesday household loan growth was likely to moderate further while construction loans were likely to get a boost from reinstated infrastructure projects.

“Asset quality will likely deteriorate over the coming months, with agriculture non-performing loans (NPLs) likely to continue rising after a five-fold increase in April. That said, we do not see material risks to financial stability,” it said.

Fitch Solutions believed the moderation, while not yet over, was likely approaching the trough over the coming months . 

“Loans to households , which are likely to still slow amid high indebtedness, would see a gentler pace of deceleration, especially as the disbursement of tax refunds by the government is likely to help support the segment. 

“Construction loans meanwhile, will likely see some upside from the restarting of suspended projects like the East Coast Rail Link, as well as road infrastructure projects in the pipeline,” it said.

Fitch Solutions expect asset quality to remain under pres s ure on the back of a further increas e in non-performing loans (NPLs ) in for credit is s ued towards the ag riculture s ector although it does not expect any meaningful risks to financial stability to emerge over the coming months . 

Overall loan growth came in at 4 .6% in the 12 months up to May.

It expects credit growth to households (57.8% of total loans) to only ease slightly further over the coming months. 

While the Malaysian economy was likely to continue slowing over the coming months , it still expects steady private consumption growth, in light of the RM37bil the government plans to pay out in tax refunds in 2019. 

Construction loan growth will likely pick up over the coming months and help to stabilise overall loan growth. 

Malays ia’s construction sector is likely to benefit from the restarting of the China-backed East Coast Rail Link (ECRL), as well as the revival of the Bandar Malaysia Transport Hub project. 

While the ECRL has been re-negotiated with a lower overall price tag of RM44 bil, from RM66bil previously, its resumption is a tailwind for the construction sector.

Furthermore, the government has 11 road infrastructure projects in East Malaysia in the pipeline, including the Pan-Borneo Highway which is estimated to cost RM29bil and with work on the project having already begun. Work on most of the other projects is only planned to commence towards the end of 2019 .

Fitch Solutions sees the slowing economy to continue exerting pressure on asset quality over the coming quarters . 

NPLs have been hovering around 1.4% of total loans since December 20 18 . Of note is the agricultural sector, which appears to be showing signs of distress , given the spoke in NPLs from agricultural loans between March and April, to RM1.1bil from RM253.7mil, a five-fold increase. 

This is likely due to the fact that Malaysia’s palm oil sector has been hard hit by falling crude palm oil prices , which has fallen 12.9% since January 1 to RM1.944 /tonne from RM2,166 of July 5.

“With the overall NPLs ratio at 1.4%, as set quality remains strong and is unlikely to pose significant risks to financial stability over the coming quarters,” it said.

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