Retail loan growth likely to remain strong


PETALING JAYA: Banking stocks are still considered “safe” investments in the face of possible economic uncertainties, despite diminishing tailwinds within the sector.

MIDF Research in a report said it is maintaining a “positive” call on the banking sector.

“Valuations and dividend yields remain fairly attractive, as banking remains a safe sector in the face of a possible economic downturn,” it said, adding that the banking industry can also look to improve non-interest income.

“Nevertheless, tailwinds seem to be thinning, as the sector must contend with rising deposit competition, falling current account savings account rates, sticky technology and personnel costs, further macroeconomic overlays and further threats to asset quality in the following year.”

Hong Leong Investment Bank (HLIB) Research meanwhile has downgraded its call for the Malaysian banking sector to “neutral.”

“Although valuations remained undemanding, we turn less bullish on the banking sector as we see sector tailwinds dissipating.

“There are fewer rate hikes next year, deposit rivalry is intense and the macroeconomic outlook is softer.”

Additionally, the research house said investment fatigue is building up towards the sector.

Separately, HLIB Research said loan growth in the month of October held steady at 6.5% year-on-year, fuelled by both the household and business segments that were up 6.3% and 5.5% respectively.

“For the household segments, the increase was broad-based across all sub-segments. As for the businesses segment, it was backed by working capital lending. Overall, system loans growth was within our full-year 2022 expectations of 6% to 6.5%.”

On an annualised basis, MIDF Research said loan growth was 6.1%.

“Loan growth should continue tapering down in the first half of 2023 in a less liquidity-rich environment. Most banks are already registering high loan and deposit ratios.”

MIDF Research noted that retail loan growth is also still strong.

“Retail loans grew by a solid 7.2% year-on-year. We believe that this may have peaked at 7.5% year-on-year in the previous month.”

The research house said this translated to a month-on-month and annualised growth of 0.6% and 6.5%, respectively.

“While hire purchase and residential mortgages continue to act as core drivers, they seem to have come off their peaks, slightly.

“Unsecured loans, on the other hand, scored a stellar 5% month-on-month increase.”

MIDF Research added that credit card loans made up 1.9% of system loans.

“These were up by a strong 13.6% year-on-year. Total purchases in Malaysia by both local and foreign cardholders exhibited strong sequential month growth (3% and 7% month-on-month, respectively).”

The research house pointed out however that the proportion of total local card purchases continued to skew further toward foreign cardholders.

HLIB Research meanwhile said asset quality was resilient, with October 2022’s gross impaired loans ratio remaining firm month-on-month at 1.82%.

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