Kenanga Research said the total loans in June grew 6.4% y-o-y, but the growth could ease in the second half.
PETALING JAYA: The banking industry’s loan growth could slow down in the second half of this year amid softer financing demand from households, analysts say.
Households represent about 59% of the banking system’s loans.
In the January-June 2024 period, RHB Research said loan applications were up 4% year-on-year (y-o-y), with applications from businesses growing at a faster rate of 4% compared to the household segment’s 3%.
“Loan approvals also exhibited the same trend, with business-loan approvals up 4% while household approvals rose by 2% in the same period.
“This lends further weight to our expectation of loan growth potentially slowing down in the second half of 2024 (2H24),” the research house said.
In a separate note, Kenanga Research said the total loans in June grew 6.4% y-o-y, but the growth could ease in the second half.
On a month-on-month (m-o-m) basis, loans for businesses in June rose by 1.3% while household borrowing only gained 0.5%.
“For the time being, we deem this to be still within our projected 5.5% to 6% loans target for 2024 on possible easing stemming from inflation from fuel subsidy rationalisation,” said Kenanga Research.
The research house added that loan applications are likely to slow.
“June 2024 applications increased by 2% y-o-y but solely on the back of more business-loan applications as households appear to be flattish.
“While we could tie this to the strength in service sectors, we note that loan application readings declined by 12% m-o-m which could indicate that past levels could have been a bottleneck, supporting our expectation of possible easing in the coming months.”
On deposits, Kenanga Research said the banking system saw growth of 4.9% y-o-y in June, but was flattish m-o-m as spending requirements had likely remained moderate.
“We also saw current account and savings account levels remaining stable at 28.6% amid ongoing competition on fixed deposit products likely keeping depositors sticky, albeit on possibly lower yields compared with prior periods,” the research house said.
Kenanga Research said the banking system’s average interest spread in the 2Q24 appears flat y-o-y and q-o-q.
“So we think sector net interest margins (NIM) could be flat-to-slightly-better in the upcoming reporting season.
“From meetings with the banks, we gather that competition for loan rates has been stiff, but the banks have also been diligently cutting deposit rates to provide some support to NIM and bottomlines.”
The banking system data for June also showed slight improvement in impaired loans.
According to TA Research, the banking system’s total impaired loans contracted by 0.9% y-o-y and 1.2% m-o-m.
By segment, consumer impaired loans decreased by 2.1% y-o-y and 1.4% m-o-m, while the impaired loans for businesses were steady y-o-y and declined 1% m-o-m.
The ratio of net impaired loans to total gross loans for banks stood at 1.6%, little changed from 1.7% a year ago.
Looking ahead, TA Research has maintained its loan-growth forecast for 2024 at 6.1%. This is underpinned by consumer and business loan growth of 6.3% and 5.9%, respectively.
“We reiterate our ‘overweight’ call on the sector based on rising loan growth, stabilising NIM, the potential for higher net interest income, gradual acceleration in fee income, and healthy capital and liquidity buffers,” the research house said.
