The pick-up in October 2016’s industry loan growth to 4.5 per cent y-o-y is a reprieve from the downtrend seen in Malaysia’s banking sector since August 2015, Maybank IB Research says. — Reuters photo
KUCHING: The pick-up in October 2016’s industry loan growth to 4.5 per cent year-on-year (y-o-y) is a reprieve from the downtrend seen in Malaysia’s banking sector since August 2015, the research arm of Maybank Investment Bank Bhd (Maybank IB Research) said.
In a recent report, it pointed out that the annualised loan growth of four per cent in October 2016 is still lagging its 2016 forecast of 5.3 per cent but recent guidance from the larger banks points to a still healthy corporate loan pipeline.
“Industry loan growth finally saw an uptick in October 2016, rising 4.5 per cent y-o-y versus 4.2 per cent y-o-y in September 2016.
“This is undoubtedly a reprieve since loan growth has trended down relentlessly since hitting a recent peak of 10.2 per cent y-o-y in August 2015.
“Household (HH) loan growth, however, continued to soften to 5.4 per cent y-o-y versus 5.6 per cent y-o-y in September 2016 but non-HH loan growth gathered pace to 3.2 per cent y-o-y from 2.3 per cent y-o-y the month before.
“Positively as well, annualised loan growth picked up pace to four per cent in October 2016 from 3.6 per cent in September 2016 with HH loan growth of 4.8 per cent and non-HH loan growth of three per cent,” it said.
It also pointed out that non-HH loan growth grew at a faster pace of 3.2 per cent y-o-y in October 2016 to mitigate the ongoing slowdown in HH loan growth, which slipped a notch to 5.4 per cent y-o-y versus 5.6 per cent y-o-y in September 2016.
“On a 3-month moving average (3M MA) basis, applications contracted 8.3 per cent y-o-y in October, the fourth consecutive month of contraction.
“Loan approvals contracted for the 14th consecutive month but positively, the quantum of the contraction has narrowed to just 4.5 per cent versus the recent peak contraction of 19 per cent in Apr 2016. Bond issues totaled RM74 billion January to October 2016, 36 per cent higher y-o-y.
“Adding this to industry loans, total credit growth is a higher 5.7 per cent y-o-y,” Maybank IB Research added.
Meanwhile, the research team noted that the bank sector’s system deposit’s growth remained tepid despite the slight up tick in its growth.
“As with loans, October system deposits growth also ticked up to 2.6 per cent y-o-y from 1.3 per cent y-o-y in September.
“On an annualised basis however, deposit growth remained tepid at just 0.8 per cent y-o-y. CASA expanded 2.8 per cent y-o-y in October versus a contraction of 0.3 per cent y-o-y in September.
“The industry’s loan/deposit ratio (LDR) was stable month-on-month (m-o-m) at 88.7 per cent end-October,” it explained.
As for the banking sector’s asset quality, Maybank IB Research that the industry’s gross impaired loans (GIL) remained stable.
“The industry’s gross impaired loans (GIL) rose 0.6 per cent m-o-m and 7.9 per cent y-o-y in October 2016. The GIL ratio was nevertheless stable at 1.65 per cent end-October 2016.
“On a segmental basis, residential property GIL rose 6.8 per cent y-o-y while nonresidential property GIL increased 7.6 per cent y-o-y. Personal GIL rose 28.9 per cent y-o-y while credit card GIL increased 6.5 per cent y-o-y.
“On the non-HH front, construction GIL was the main contributor to the industry GIL increase, jumping 36.8 per cent y-o-y (an increase of five per cent m-o-m). Working capital GIL rose seven per cent y-o-y,” it said.
Overall, Maybank IB Research maintained a ‘neutral’ view on the sector.