KUCHING: Analysts are projecting a more robust loan growth in the second half of 2018 (2H18), compared to 1H18, while others also believe that current year 2018 (CY18) loans growth will come in better in CY18 from CY17.
According to Affin Hwang Invesmtment Bank (Affin Hwang), as new loan applications and approvals moderated month on month (m-o-m) in May 2018, attributable to uncertainties related to the then-General Election (GE14), loan disbursements are likely to moderate in the next month or two.
“Hence, we may likely see weaker growth in system loans in June to July, but as confidence returns in tandem with the new government’s favourable policies, loan growth in 2H18 may be more robust than 1H18,” the research firm said.
Meanwhile, the research arm of MIDF Amanah Investment Bank Bhd (MIDF Research) believed that loans growth would come in better in CY18 from CY17 given current pace of loans applied and approved seems to be providing a steady loans pipeline.
At current juncture, MIDF Research observed that there is a prevalent cautiousness following the surprise the GE14 result.
“However, we believe that this will normalise once the new Government has settled in and clearer picture on policies can be seen.
“Hence, we are maintaining our 5.5 per cent year on year (y-o-y) loans growth expectations for this year,” the research arm said.
Overall, MIDF Research continued to be positive on the banking sector.
“We believe that the stable employment environment will drive loans growth. The sector will be tied with how the policies of the new Government translate to economic growth.
“We believe the new Government’s proposals to promote affordable housing will be positive for the sector as it means that demand for mortgages will continue.”
MIDF Research also believed that the sell down in banking stocks in recent weeks have been more sentiment driven than anything else.
The research arm opined that this sell down is unwarranted given that the fundamentals banks remain unchanged.
“As such, we believe that banking stocks can be seen relatively cheap currently,” it said.
“With better clarity on the economic direction later, we expect that the banking stocks may stage a rebound.”
Affin Hwang also noted that an improving global economic outlook and relatively stronger commodity prices are favouring a further rebound in banking sector earnings in 2018.
For one, Affin Hwang pointed out that Malaysia’s first quarter of 2018 (1Q18) gross domestic product (GDP) moderated to 5.4 per cent, versus 6.2 per cent in 3Q17 and 5.9 per cent in 4Q17.
Meanwhile, the Nikkei Purchasing Manager Index moderated slightly to 47.6 in May 2018 from 48.6 in April 2018.
“Economic indicators are meanwhile, still positive, indicating no deterioration in business sentiment moving forward.”
As for the labour market, the research firm said that as the unemployment rate remained unchanged at 3.3 per cent in April 2018, the labour-force participation rate as of that month also continued to maintain at the highest levels in two years and the workforce is still growing in tandem with population growth.
“A robust labour market would be supportive of increased consumer spending and demand for both big- and small-ticket items.”
On commodity prices, the research firm further noted that these have been gradually turning around since 4Q16 as the industry’s supply-demand dynamics continue to improve.
“A recovery in commodity prices would help to justify a higher carrying value and writebacks in value to the related-loan account, which previously had been written-down and recognised as an impairment charge.”