Loan growth to continue in 2H

KUALA LUMPUR: Loan growth for April stayed relatively stable at 10.5%, with analysts expecting it to pick up in the second half (2H) of this year due to a better business environment post-general election.

In a note yesterday, CIMB Research said it is projecting a loan growth of 11% to 12% for this year.

“However, the impact of improved loans growth will be tempered by margin erosion, which fortunately, will be more muted than in 2011/12. Given the healthy economic climate, we do not see any significant risk of an uptick in impaired loan ratios,” it said.

“More positively, the indicators for all major loan segments, including property, auto and working capital loans, showed improvements,” said CIMB Research.

In April this year, loans to businesses expanded by 8.3% year-on-year (y-o-y) while household loans continued to expand at a faster pace of 12.2% y-o-y.

Monthly loan applications in April stood at RM71 billion, unchanged from March. Loan demand from businesses was sustained with monthly applications at RM31 billion, while household applications inched up to a new high of RM40 billion from RM38 billion in March.

The loan approval pipeline stood at RM34 billion, also unchanged from last month. Household loan approvals rose slightly to RM21 billion from RM19 billion in March, offset by a marginal drop in approvals for business loans.

Deposit and base lending rates were largely unchanged. The average lending rate was kept at around 4.7%, unchanged since November last year. However, y-o-y, it was down 18 basis points.

RHB Research is maintaining its loan growth projection for this year at 10% to 11%.

“The stable loan pipeline is consistent with feedback from the banks during the recent 1QCY13 reporting quarter, and supports our view that loan growth would pick up pace in 2H13 now that the uncertainties due to the elections have been removed,” said the research house.

“Nevertheless, we note from recent results that net interest margins (NIM) were under pressure from lower asset yields.

“We expect this to persist as higher yielding loans continue to be rolled off the book and replaced by lower yielding loans. That said, we expect the pace of NIM contraction to slow down this year,” it added.

Meanwhile, UOB KayHian Research and Alliance Research are being slightly more conservative with their estimates and maintaining their loan growth projections for the year at 9% to 10% and 7% to 9% respectively.

“While business loan growth is likely to pick up post general election, the slowdown in overall loan growth should continue in 2Q13 with more stringent requirements by banks, especially on household loans,” said UOB KayHian.

“We expect business loans to pick up only in June at the earliest. Newly appointed government officials will need some time to assess their respective portfolios before implementing their election manifestos,” the research house added in a note yesterday.

Alliance Research said its projections were made in view of the potentially quiet second quarter, in anticipation of unexciting lending activities in May.

“Although we do acknowledge that the loan growth could be dampened in the latter part of this year, should the federal government decide to engage in fiscal tightening policies through subsidies rationalisation programme and electricity tariff hike, we foresee upside risks to our 7% to 9% loan growth target.

“This is because we expect loan growth momentum to pick up going forward, mainly driven by the accelerated disbursements of ETP related loans as general election-related risk dissipates,” it said.

This article first appeared in The Edge Financial Daily, on June 4, 2013.