PETALING JAYA: Bank loans are likely to grow slightly faster this year even as financial institutions brace headwinds both domestically and externally.
While the industry loan growth ended on a weak note in 2019 at a rate of 3.9%, which was about half of 2018’s pace, there was a strong growth in loan applications in December.
Maybank Investment Bank Research said loan applications rose 11.7% year-on-year (y-o-y) on a three-month moving average basis in December 2019 and growth was positive across most major segments.
It projected a slightly faster industry loan growth of 4.3%, premised on a stable household loan growth of 4.7% and faster non-household loan growth at 3.8% as infrastructure lending gathers momentum.
The household loan growth in 2019 was recorded at 4.7% compared to 8.3% in 2018 while non-household loan growth dipped to 2.7% from 6.8% in 2018.
Within the household segment, only mortgage and credit card loan growth was robust at 7.3% and 6% y-o-y respectively in 2019.
There was also a significant improvement in the industry’s asset quality in December 2019, with absolute gross impaired loans (GILs) declining RM1.3bil month-on-month (m-o-m).
It said this could have been due to the reclassification of certain corporate loans to performing, as working capital GILs tumbled RM550mil m-o-m, as well as the possible sale of a portfolio of GILs.
Cumulative GILs for transport vehicles dropped by a hefty RM377mil while personal GILs dropped RM218mil m-o-m.
Meanwhile, Kenanga Research said the deceleration in loan growth is expected to continue in 1H20 and may only recover in 2H20 to settle at 4%.
It expects Bank Negara to lower the OPR by a further 25 basis points to 2.5% in the near term as the recent cut on Jan 22 may only help to contain growth from slowing further but not enough to boost the growth momentum going forward.
The research house added that downside risks were to persist in both domestic and external sectors with the impact from the coronavirus outbreak, expected to mainly hit the services and the manufacturing sector, while the impact from the raised tariffs between the US and China will still weigh on global trade and growth.
UOB Kay Hian Research was slightly more generous, having pencilled in a loan growth of 4.5%, which it deemed as modest.
It said the front loading of mortgage purchase during the home ownership scheme in 2019 could result in further weakness in mortgage loan growth this year, which in turn could partially offset its expectations of a stronger business loan recovery in 2H20 on the back of the roll-out of some mega infrastructure projects.
It added that year-to-date, the banking sector has declined 4% on the back of the OPR cut and the coronavirus outbreak.
UOBKayHian retained its “market weight” rating for the sector given the lack of visible growth catalysts and that valuations were now near global financial crisis troughs.
Its top pick is Hong Leong Bank Bhd for its above-industry loan growth and resilient asset quality.
RHB Research still expected bank lending to grow at 4% this year as it had earlier priced in the recent slash in OPR.
It said credit growth would likely remain modest as demand for credit dries up with the global outlook which is still pessimistic.
Affin Hwang Capital Research was more conservative, maintaining its loan growth target at 3%, on the back of a more subdued economic outlook in 2020, while not discounting the possibility of further increase in the system impaired loans as sentiment deteriorates.
Its top picks are AMMB and AEON Credit Service (M) Bhd.
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