“With loans under financial assistance trending downwards, banks have yet to write back their management overlays significantly as they continue to be prudent on provisions in the near term,” the research house said.
PETALING JAYA: The banking industry’s loans have grown by 4.7% year-to-date, which is below AmInvestment Bank Research’s (AmInvest) expectation of 5% to 6% growth for this year, supported by gross domestic product (GDP) expansion of 5.6%.
Loan growth had risen to 5% year-on-year (y-o-y) in May 2022.
“A higher household loan growth of 5% y-o-y was offset by a slightly slower non-household loans of 4.9% y-o-y,” it said, adding that lending for working capital loans slowed down in May.
AmInvest said total provisions by the banking sector rose marginally by 0.8% month-on-month (m-o-m) or RM261mil in May.
“With loans under financial assistance trending downwards, banks have yet to write back their management overlays significantly as they continue to be prudent on provisions in the near term,” the research house said.
It said while there remains room for writebacks on overlays ahead, a portion of the prudential provision buffers set aside earlier could be utilised to cover specific loans that have impaired after the end of the broad repayment assistance programme, if necessary, without the need to further increase their provisions sharply.
AmInvest said the acceleration in rate hikes by the US Federal Reserves towards 3.5% by the end of this year will lead to a more stable 10-year Malaysian Government Securities yield, which stood at 4.2% for May 2022.
This bodes well for banks’ non-interest income streams ahead without the negative marked-to-market revaluation impact on banks’ securities holdings, it said.
It expects asset quality for the banking sector to remain stable albeit with continued upticks in impaired loans as borrowers continue to exit loan repayment programmes, leading to the tapering of the percentages of loans under repayment assistance.
