Loan growth likely to pick up this year

As borrowers adjusted and recommenced repayment after the blanket automatic loan moratorium ended in September last year, loan growth had stalled month-on-month (m-o-m) in November.

PETALING JAYA: If November 2020 banking statistics are anything to go by, a decent demand for mortgage and auto financing is seen although sentiment among borrowers, especially businesses, remain soft.

As borrowers adjusted and recommenced repayment after the blanket automatic loan moratorium ended in September last year, loan growth had stalled month-on-month (m-o-m) in November.

But while, loan growth contracted a marginal 0.1% m-o-m in that month, it had expanded at a slower pace of 3.8% year-on-year (y-o-y) versus 4.3% in October 2020.

Household loan growth slipped slightly to 5% from 5.1% in October 2020 while non-household loan growth slowed to 2.1% y-o-y from 3.2% y-o-y in October last year. Annualised industry loan growth was just 3.3% in November 2020 as compared to 3.7% in October, Maybank Investment Bank(IB) Research noted in a report.

“Extrapolating this trend into December, 2020 industry loan growth would average 2.9% versus our 2.5% forecast, ” it said.

For 2021, Maybank IB forecasts a loan growth of 3.8%, premised on faster economic expansion and still fairly decent demand for mortgage and auto financing.

For November 2020, loan applications contracted 5.1% y-o-y, but what is positive, according to Maybank IB is that “the contractions across major consumer segments are narrowing while mortgage and auto financing applications continue to be robust”.

“This should lend support to better loan growth in 2021, especially since the sales & service tax incentives for auto purchases have been extended to June.

“What we have yet to see, however, is stronger loan demand from businesses, as on a three-month moving average basis, working capital loan applications contracted 16.4% in November 2020, this being the third consecutive month of contraction.”

In terms of asset quality, further weakness is to be anticipated with the recovery movement control order (RMCO) still in place until March 2021.

Gross impaired loans, in absolute terms, rose 3% m-o-m in October and a further 8% m-o-m in November. As a result, the system’s gross impaired loans (GIL) ratio rose to 1.53% end-Nov 2020 from 1.43% end-October 2020.

On a more positive note, Maybank IB said this is still better than Bank Negara’s earlier stress test, which had projected a rise in the banking system’s GIL ratio to 3.1% end-2020 from 1.6% end-June 2020 and to 4.1% in 2021.

Meanwhile, CGS-CIMB Research expects loan growth to come in at 3.2%-3.2% in 2020 on the assumption of a m-o-m loan expansion of 0.2%-0.3% in December-2020. This, however, is about 1% point below its projected rate of around 4%% due to weaker-than-expected business loan momentum.

“Based on our estimate, every 1% point reduction in its loan growth projection lowers 2020 net profit forecast by circa 0.8%. However, we forecast stronger loan growth of 4-5% in 2021 on the back of an expected economic recovery to our projected GDP growth of 7.5% in 2021 versus a contraction of 5% in 2020), ” saud CGS-CIMB Research.

It does not rule out banks’ Q420 loan loss provisioning (LLP) coming in higher than the Q320’s RM3.73bil in view of the rise in total provision by RM2.84bil from October to November. Going by this, it estimates that banks’ net profit could decline by 15%-20% y-o-y in Q420 versus -19% y-o-y in Q320.

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