Brighter loan growth prospect for banks

PETALING JAYA: Analysts are upbeat on banks’ loan growth prospects for this year, underpinned by an increase in consumer and business loans.

TA Research in a report said it is raising its loan growth forecast for 2024 from 5.8% to 6.1%, underpinned by increases in consumer and business loans of 6.3% (from 5.9%) and 5.9% (from 5.6%), respectively.

The research house said it sees good growth prospects for business loans.

“The government’s ongoing initiatives to stimulate investment activities should augur well for the economy, with construction and infrastructure projects like the MRT3, Penang LRT, Kuala Lumpur-Singapore high-speed rail, and significant flood mitigation efforts driving growth.

“Additionally, the National Energy Transition Roadmap (NETR) is set to boost renewable energy investments, attracting both domestic and foreign interest.”

Meanwhile, MIDF Research in a report said it is maintaining a positive outlook on the local banking sector.

“Our outlook is premised on Bank Negara’s initiatives to preserve liquidity in the economy, while resilient retail loan yields and a strong pipeline should prevent any slowdown in take-up until at least next year.”

TA Research said key economic indicators, such as a business loan approval rate of 56%, exceeding the 10-year average of 49%, reflected banks’ increased willingness to finance, due to improved asset quality and sufficient capital and liquidity.

“This, combined with a stable interest rate environment, suggests a continued rise in demand for business loans in the coming six to 12 months. As expected, this positive sentiment should extend to capital markets.

“Corporate bond markets, driven by expansionary Budget 2024 initiatives, as well as various infrastructure projects and NETR investments, appear to be gaining momentum.”

Additionally, TA Research said consumer loans continued to demonstrate remarkable resilience on a year-to-date basis.

“According to Bank Negara, total consumer loans accelerated by 6.5% year-on-year in April, buoyed by the steadfast pillars of mortgages, hire purchase and credit cards.

“Residential mortgages, which account for a sizeable chunk (around 64%) of total consumer loans, continued to support growth in the segment, increasing at a more robust pace of 7.5% year-on-year.”

TA Research noted that hire purchase loans also climbed at a healthier rate of 10.1% year-on-year, while the yearly drawdowns for credit cards and loans for personal uses broadened by 8.9% year-on-year.

“However, drawdowns for the purchase of securities declined again by 10.3% year-on-year.”

TA Research added that other Bank Negara indicators, such as loan applications and approvals, also increased in April 2024, supporting the research house’s upward revision of the loan growth forecast.

“According to Bank Negara, total loan applications expanded by 12.8% year-on-year. Consumer loan applications grew by 10.5% year-on-year, while business loan applications also rose by 15.5% year-on-year.

“By sub-segment, loan applications for hire purchase loans, residential properties, purchase of securities, credit cards and personal uses rose by 10.2%, 11.9%, 16.6%, 7.2%, and 1.8% year-on-year, respectively.”

TA Research has reiterated its “overweight” stance on the banking sector based on expectations of accelerating loan growth momentum, stabilising net interest margin, gradual acceleration in fee income and healthy capital and liquidity buffers, which could potentially lead to higher dividend payouts in 2024.