Softer financing demand seen in September

PETALING JAYA: Banks experienced softer financing demand post-September’s overnight policy rate (OPR) hike, which has led to higher lending rates, says RHB Research.

The research house noted the 25-basis- point hike appears to have slightly dampened demand for financing, as loan applications recorded a month-on-month (m-o-m) drop in September.

Loan approvals also slipped 14% m-o-m in September, in tandem with the continued tightening of monetary conditions.

“The slight slowdown comes as no surprise, given that monthly loan approvals reached a record high of RM78.7bil in August,” RHB Research said in a note to clients.

Bank Negara’s Monetary Policy Committee meeting is scheduled today and a Reuters poll early this week found that 25 out of 27 economists surveyed predicted that the central bank would hike its OPR by 25 basis points to 2.75% from 2.5%.

Back to September’s data, RHB Research pointed out that loan approvals of RM67.8bil are still elevated versus the pre-pandemic average of RM30bil to RM40bil, which could point towards normalisation of approvals in the months ahead.

The research house also said system loans added 6.4% year-on-year (y-o-y) and 0.6% m-o-m in September, led by the wholesale and retail trade and household sectors, and offset marginally by a decrease in loans to the mining and quarrying sector.

The m-o-m strength was also seen in loans to the finance sector, which grew 3.7% m-o-m and 7.1% y-o-y.

Elsewhere, loans for residential mortgages and working capital continued to chart encouraging growth, added RHB Research.

“The annualised loan growth of 5.8% for the first nine months is tracking ahead of our full year forecast of an 5.5% increase y-o-y, which we now raise to an increase of 5.7%.”

On the September OPR hike, the research house said this pushed lending and deposit rates up further.

The 19bps m-o-m rise in the average lending rate appears to have softened the general appetite for financing, as system loan applications shrunk 7% m-o-m and 3.1% y-o-y.

On the other hand, the 12-month fixed-deposit rate gained 24 basis points m-o-m leading to a 1% uptick in total fixed deposits.

In terms of sequential improvement in asset quality, the total gross impaired loans (GILs) recorded a 0.4% growth m-o-m in September.In particular, GILs reduced in the finance and mining and quarrying sectors, which slightly offset the increase in manufacturing GILs.

Overall, system GIL ratio of 1.82% is a two bps m-o-m improvement, while the loan loss coverage ratio also strengthened to land at 97.8%.

Meanwhile, RHB Research said the current account savings account (CASA) moderation was within expectations.

CASA deposits shrunk 0.9% m-o-m in September, against total deposits growth of 1.5% m-o-m. As a result, the CASA ratio narrowed to 41.3%.

“This is largely within the banks’ expectations, as consumers swap CASA deposits for the increasingly lucrative time deposits.

“We believe the CASA ratio is likely to moderate further, but to a level above the pre-pandemic average of over 35%, given the increasing adoption of digital payment channels,” added the research house.