September OPR hike slows financing demand

KUALA LUMPUR: While the increase in the overnight policy rate (OPR) in September led to lower recorded loan applications in the banking sector, the lenders could be seeing stronger interest income growth in the coming quarters, says RHB Research.

According to the research firm, Bank Negara's third consecutive rate hike for the year increased the average lending rate by 19bps month-on-month (m-o-m), which softened the general appetite for financing.

System loan applications were seen falling 7% m-o-m, although it remained 35% higher on a year-on-year (y-o-y) comparison.

However, the 12-month fixed deposit rate gained 24bps m-o-m, which led to a 1% uptick in total fixed deposits.

System loan approvals were also seen slowing 14% m-o-m in September due to the continued tightening monetary conditions.

"The slight slowdown comes as no surprise, given also that monthly loan approvals reached a record high of RM78.7bil in August.

"September loan approvals of MYR67.8bil are still elevated vs the pre-pandemic average of about RM30-40bil, which could point towards normalisation of approvals in the months ahead," said RHB in a note.

All told, RHB noted that systems loans growth in September remained on a strong upward trajectory, adding 6.4% y-o-y.

The increase was led by wholesale and retail trade, which added 13.5% y-o-y, and household up 0.6% y-o-y. The increase was marginally offset by a decrease in loans to the mining and quarrying sector, which was down 12.3% y-o-y.

"Elsewhere, loans for residential mortgages (7.4% y-o-y, 0.6% m-o-m) and working capital (8.5% y-o-y, 0.1% m-o-m) continued to chart encouraging growth.

"9M22 annualised loans growth of +5.8% is tracking ahead of our full-year forecast of 5.5% y-o-y, which we now raise to 5.7%," said RHB.