Loan growth remains stable in banking sector, ETP to be key driver moving forward
Posted on July 4, 2012, Wednesday
KUCHING: Loan growth in the banking sector is resilient as ever while the contract rollout of projects spurred by the Economic Transformation Programme (ETP) is expected to bring about resurgence in the vitality of the economy moving forward.
Bank Negara Malaysia’s (BNM) May 2012 statistics for the banking industry indicated that loan growth remained stable; total loans expanded 12.5 per cent year-on-year (y-o-y) to RM1,051.8 billion, a boost from the 12.1 per cent y-o-y growth in April.
On a year-to-date basis, total loans grew five per cent or 11.9 per cent on an annualised basis while the loan-to-deposit ratio was slightly higher at 78 per cent with unutilised deposits of RM293.7 billion.
The research division of Kenanga Investment Bank Bhd (Kenanga Research) opined that the statistics suggested that the local banking system remained flushed with liquidity.
“We believe this is a sign of optimism for the second half of 2012 (2H12) capital market development as the system would be able to support the lending and capital market activities with local funding.
“This excess liquidity will be able to support ETP-related infrastructure projects and capital market activities, such as initial public offerings (IHH Healthcare, Astro) and share market trading volume leading to possible better equity valuation multiples and a higher total market capitalisation.
“We believe that local banking groups will continue to do well in the current conducive banking system,” the research team opined.
Loans to households (which accounted for 54.7 per cent of the total loans) grew at a steady rate in 11.7 per cent y-o-y largely due to mortgage loans rising to another record high in May, up 19.3 per cent y-o-y and a healthy recovery in hire purchase loans growth of 6.64 per cent y-o-y.
As deposit growth had continued to outpace loan growth, the loan to deposit ratio was stable at 78.2 per cent, with total current account savings account (CASA) contributing to 25 per cent of the total deposits.
Alliance Research Sdn Bhd (Alliance Research) noted, “Although contribution from property loans remains high, constituting 38.5 per cent of the total outstanding loan in May, we observe that contributions from working capital and other purpose loans have increased on a year to date basis, constituting 25.3 per cent and 5.8 per cent (respectively) of the total loan components.
“This has reaffirmed our expectation that overall domestic lending activities remain robust, with stronger growth of business loans stemming from the roll out of Entry Point Projects (EPPs) under the government’s ETP which filled up the vacuum left by the moderation in property loans.”
The strong rebound in lending indicators reaffirmed the research house’s optimism of the continued vibrant domestic lending activities and its view that the sluggishness and volatility seen in the first few months following the introduction of responsible lending guidelines would eventually normalise.
“We believe that the upcoming BNM statistics in June will provide a reliable gauge on the lasting impact of the said guidelines to the domestic lending activities, with banks completing their policy fine tuning to comply with the guidelines,” it opined.
As its top picks for the sector, Kenanga Research chose Public Bank Bhd for a domestic-driven model that offered earning visibility, CIMB Group Holdings Bhd and Malayan Banking Bhd.
Alliance Research named Hong Leong Bank Bhd as its top pick premised upon a multi-year re-rating story from its transformation to be ‘a banking giant’, synergistic benefits derived from the enlarged entity and an attractive valuation.
It picked Affin Holdings Bhd for the small cap segment, describing it as a bank that ‘offers good proxy to the merger and acquisition theme but has been persistently overlooked by investors’, while Kenanga Research dubbed the bank as ‘the potential dark horse for the sector’.