Banking sector loans moderated to 5% in February, says research house

PETALING JAYA: According to a report by Bank Negara Malaysia, loans in the banking sector moderated to 5% in February compared to 5.5% in January, TA Research says.

Accounting for some 60% of total consumer loans, the slowdown was largely due to residential mortgages, which rose at a softer pace of 7.1% year-on-year (yoy). This was followed by personal loans which increased 7.2% yoy, and drawdowns for the purchase of securities which was up by 6.2% yoy.

The research house said loans for the purchase of passenger cars remained lacklustre, slipping 0.6% yoy. Advances for credit cards paced up, rising 2.0% yoy during the month.

“Weaker demand for business loans was observed, and momentum for business loans also weakened.

“While we estimate that business loans were largely supported by the SME segment (8.3% yoy), we believe that other business loans, such as the larger corporate enterprises, climbed at a muted pace of 2.8% yoy,” it said in a report released today.

Drivers for business loans include wholesale and retail trade (+7.1% yoy), manufacturing (+9.7% yoy) and construction (+10.7% yoy). Finance, insurance and business activities registered growth of 7.0% yoy, continuing its positive momentum.

Year-to-date net funds raised by the private sector through the issue of new shares and new issue of debt securities (excluding redemptions) rose to RM9.1 billion versus RM6.9 billion a year ago.

Yoy loan applications decreased by 14.0% in February. Month-on-month, loan applications fell by 29.8%. Application for consumer and business loans contracted by 8.4% and 20.7% yoy. By segment, applications to buy residential mortgages and for personal use also fell during the month, down 0.7% yoy and -15.5% yoy.

Application for credit cards declined by another 17.7% yoy which the research house believes was spurred by the sales and services tax (SST) imposed on credit cards, while yearly change in the application for hire purchase (HP) loans decreased for the sixth consecutive month by 12.0% yoy

The 6.7% yoy reduction in loan approvals was, again, mostly driven by the consumer segment (-13.7% yoy). On the other hand, yearly approvals for the business segment improved +4.4% yoy. The overall approval rate stood at 46.9% (February 2018: 43.3%), supported by business and consumer approval rates of 48.4% and 45.9% respectively.

By major sub-segments, approval for the purchase of residential properties and non-residential properties stood at 42.1% and 37.8% versus 46.0% and 31.3% in February 2018 while the approval for HP loans stood at 63.6% versus 62.0% a year ago.

TA Research said yearly repayments strengthened, rising 2.5% yoy, but fell 15.2% month-on-month in February. The ratio of net impaired loan to net total loan for the system stood little changed at 0.93%. Sequentially, the gross impaired loans ratios for residential properties, non-residential properties, credit cards, personal use and HP loans was stable at 1.1%, 1.4%, 0.9%, 2.1% and 0.8%.

The research house added that it is has maintained its 2019 loans growth projection at 5.0%, underpinned by business and consumer loans growth of 5.2% and 4.8% respectively.

It said despite some acceleration in business loans in the earlier part of the year, business activities remain in cautious mode.

It has a neutral recommendation for the banking sector with “buy” calls on CIMB and Affin, and “hold” for Maybank, Hong Leong Bank, AMMB and Alliance Bank. The research house has a “sell” recommendation for Public Bank and RHB Bank.