KUCHING: The banking sector’s loan growth has seen moderating growth according to latest figures furnished by Bank Negara Malaysia but is expected to pick up the pace in the second half (2H) of this year.
Based on the central banks statistics, the research arm of MIDF Amanah Investment Bank Bhd (MIDF Research) pointed out that the sector had seen an overall loan growth of 10.4 per cent year-on-year (y-o-y) in 2012 compared with 13.6 per cent in 2011.
December’s growth of 10.4 per cent y-o-y was lower than November’s 11.2 per cent y-o-yand the softer loan growth was not surprising and was within the research team’s expectation of a 10 to 11 per cent growth for 20112.
“The slowdown was mainly due to the moderation in business loans in the 2H of 2012 while growth in loans to household was stable.
“Business loan growth declined significantly in the last two months of 2012. Business loans ended with a growth of 10.9 per cent y-o-y compared with a high of 14.6 per cent y-o-y in July 2012. This was due to large loan repayments.
“Household loan growth was stable at 11.6 per cent y-o-y in December 2012 similar to that in November 2012. Growth in mortgage loans and loans for purchase of passenger cars was stable in December 2012,” MIDF Research noted.
Loan applications remained weak and this coupled with a shorter working month for February 2013, the research team expected loan growth for the industry to remain soft in the first quarter of 2013.
“Nevertheless, we expect improvement in global economic activities in the 2H of 2013. This will lead to a pick-up in pace of loan growth to a moderate rise in industry loan growth of between 11 to 12 per cent for 2013,” it opined.
Meanwhile, it stated that the requirements of meeting the Common equity Tier 1 ratio requirement of Basel III of seven per cent (inclusive of 2.5 per cent capital conservation buffer) as well as potential additional counter cyclical capital buffer of up 2.5 per cent by 2019 had placed banks on a conscious effort to strengthen their capital position.
The amount of counter cyclical capital buffer to be required would be subjected to discretion of regulatory authority. The capital ratios requirement might also be imposed on financial holding companies, it said.
“Most banks are maintaining their dividend payouts and at the same time implementing dividend reinvestment plans to boost their capital ratios.
Deposit gathering would still be a focus of banks via deposit campaigns. Mortgage loans spreads remain thin; we believe banks will place priority on expanding other types of retail loans with higher yields to strengthen their asset yield.
“The regulatory requirements of maintaining strong capital position, sufficient liquidity and healthy leverage while targeting to attain higher net profits and return-on-equity will challenging for banks,” MIDF Research summed up.
Making no changes to its stock picks, the research team remained positive on Malayan Banking Bhd with a target price of RM10.20 per share, Public Bank Bhd(RM17.10 per share), RHB Capital Bhd (RM9 per share) and Affin Holdings Bhd (RM4.20 per share).