Banking loans picking up as asset quality improves in August

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KUCHING: Bank Negara Statistics for August 2017 are out and it looks like loans have been picking up alongside improving asset quality.

In a sectoral report, the research arm of Kenanga Investment Bank Bhd (Kenanga Research) saw that August loans rose with a 20 basis point (bps) increase to +5.8 per cent year over year (y-o-y) at RM1,557 billion.

Month-on-month (m-o-m), this was an acceleration of 40 basis points to 0.5 per cent m-o-m.

According to the research firm, this was mostly driven by the business segment as its loans had improved by 40 bps to +5.3 per cent y-o-y from +4.9 per cent y-o-y in July, whilst household loans were flat at +6.3 per cent y-o-y.

Despite the flattish growth in household loans, loan applications continued to climb as demand for household loans increase – growing by 9 per cent y-o-y while business loans grew 4.1 per cent y-o-y.

By sector, the growth in the business segment was driven by loans from the primary agriculture, construction and utilities segments for the purposes of working capital and mortgages.

Another possible reason for this pick-up in momentum can also be attributed to higher disbursements against lower repayments in August.

In august, the banking sector’s disbursements and repayments were +15.8 per cent y-o-y and +12.1 per cent y-o-y, respectively. In July these figures were +13.3 per cent and 15.5 per cent y-o-y.

Alongside increasing loans, their asset quality was also seen improving as net impaired loans ratio fell by 1bps m-o-m to 1.22 per cent while gross impaired loans (GIL) ratio were lower by 1bps m-o-m to 1.67 per cent.

“GIL for the business segment was 4bps lower m-o-m while the household segment was flat m-o-m.

“Meanwhile, loan loss coverage improved m-o-m by 10 bps to 81.4 per cent as impaired loans growth outpaced provision at 6.4 per cent y-o-y vs 3.2 per cent y-o-y,” reported Kenanga Research.

All things considered, the research arm is ‘Neutral’ on the banking sector on the whole and is also maintaining their view of system loans between 5.5 and 6.0 per cent for 2017.

“While approval rate seems to be improving the easing of applications is a concern; thus, we expect growth in 3QCY17 to ease with the usual pick-up in growth at the end of the year supported by improving approval rates as asset quality seems to be stable and improving.”

“With excess liquidity easing, we opine that net interest margin will be mild as banks may adjust their lending rates as demand accelerates.”