PETALING JAYA: The banking sector is expected to see a modest recovery in loan growth this year, owing to the automatic loan moratorium and lower provisioning amid some downside risks.
The automatic loan moratorium, which banks started to offer on July 7, will spur loan growth while earnings may also see an upturn this year, underpinned by higher net interest margin (NIM), according to analysts.
NIM is a measure of the difference between the interest income generated by banks and the amount of interest paid out for deposits.
Loan approval, which is an important leading indicator for loan growth, was up 22% year-on-year (y-o-y) in the first half of the year, which augurs well for total loan growth in 2021.
Analysts are pencilling in a loan growth of 3% to 4% this year versus 3.4% in 2020.
Impacted by the stricter lockdown in June, banks’ loan growth moderated from 3.9% year-on-year (y-oy) as at end-May 2021 to 3.4% y-o-y at the end of June.
The slowdown mainly came from the household loan segment, which expanded 5.2% y-o-y at end-June versus a growth of 6.1% y-o-y at end-May.
Meanwhile, the momentum for non-household loans (mainly business loans) inched down from 0.9% y-o-y at end-May to 0.8% y-o-y at end-June.
CGS-CIMB research analyst Winson Ng said the industry’s total loan expanded by 1.6% in the first half of the year, translating into an annualised rate of 3.2%.
“This was within our projected loan growth of 2.5%-3.5% for 2021, even if we factor in a slowdown in loan growth in the second half (versus the first half).
“Furthermore, the automatic loan moratorium, which banks started to offer on July 7, should lend support to banks’ loan growth as loans under moratorium would not be paid down within three to six months,” he said.
Ng is projecting gross impaired loan (GIL) ratio to rise to 2% by year-end. The industry’s GIL ratio rose marginally from 1.59% at end-May to 1.62% at end-June. This was expected, given the credit risks triggered by the Covid-19 pandemic.
Total provision for banks only increased by RM978.1mil in the second quarter of this year compared with RM2.04bil in the first quarter (for quarter-on-quarter or q-o-q comparison) and RM1.24bil in the second quarter (for y-o-y comparison).
The research house, which is reiterating an “overweight” stance on the banking sector, said from this it deduce that the downcycle in banks’ loan loss provisioning (LLP) continued in the second quarter, with likely y-o-y and q-o-q drops in the projected second-quarter LLP.
This, together with the expected y-o-y expansion in banks’ NIM, should have been the earnings drivers for banks in the second quarter, it noted, adding that it’s picks for the sector are Public Bank, Hong Leong Bank and Malayan Banking (Maybank).
UOB Kay Hian (UOBKH), which is maintaining an “overweight” stance on the sector, said, among others, it is still expecting full-year 2021 system loan growth to stage a modest recovery to 4% versus 3.4% in 2020.
“Household loans are expected to underpin the recovery, driven by the home ownership scheme and sales and service tax (SST) exemption for auto loans, both of which have been extended to end-2021.
“However, against the backdrop of weak overall business sentiment, business loan growth is likely to partially offset stronger household loan growth.
“All in all, we are expecting household and business loans to grow by 6.8% and 0.7% y-o-y, respectively, in 2021 versus 5% and 1% in 2020,” UOBKH said.
Meanwhile, Kenanga Research said it is maintaining its 2021 system loan growth expectations at 3%-4%, as immediate struggles could be offset closer to the year-end, as vaccination efforts allow for a wider scale reopening of the economy and loosening of movement controls.