Loans growth to slow down
KUALA LUMPUR, July 2 – Loans growth is expected to slow down further towards the end of this year on the back of a weaker global economy and stricter loan conditions set by Bank Negara Malaysia.
According to a local brokerage, industry loans growth at May 2012 remained relatively strong at 12.5 per cent, which is not sustainable.
Loan approvals grew 18.5 per cent year-on-year in May 2012 compared to a -11.4 per cent dip in Apr 2012 with total loans approved amounting to RM42.1 billion.
Strong loan approval growth in May 2012 was largely supported by loan approvals for the purchase of securities and transport vehicles.
While loans for vehicles are increasing, loan approvals related to residential and non-residential properties continue to lag with residential loans registering a 0.9 per cent growth in May 2012 compared to 1.8 per cent in April 2012.
In a report by OSK Research, the local brokerage said it is of the view that the overall sector performance may continue to lag, especially if net interest margin pressure continues to persist coupled with a further slowdown in consumer loans growth.
The brokerage maintains its selective buying strategy on banks that will gain direct benefits from further economic transformation programme (ETP) related growth.
This will likely impact consumer banks and small and medium enterprise (SME)-centric banks as their net income interest contributes to a sizeable 70 and 80 per cent of overall banks’ total income base respectively.
Earnings risk may be further impacted by the currently increased sector loans-to-deposit ratio of 82 per cent versus 71 cent in early 2008 and is likely to put further pressure on deposit competition which is likely to increase, causing a reverse, if economic conditions deteriorates.
The report also revealed that loan growth for credit cards is on a declining trend, recording 5 per cent in May 2012 from 12.5 per cent in Mar 2011 since Bank Negara imposed its new credit card guidelines by increasing the minimum income requirement to apply for credit cards to RM24,000 per annum from RM18,000 per annum.
The guidelines also limit cardholders to hold cards from a maximum of any two issuers.
“We expect loan growth for credit cards to hover at a single digit for the rest of the year as there are no catalysts that should propel the segment in our view,” said OSK.