KUCHING: Loans growth in 2018 is expected to improve compared to the previous year, following the slight pickup in loans growth recorded in January, analysts observed.
As per Bank Negara Malaysia’s monthly highlights and statistics, the banking system’s total loans for January 2018 amounted to RM1.59 trillion, up 4.2 per cent year on year (y-o-y).
According to the research arm of MIDF Amanah Investment Bank Bhd (MIDF Research), all major loans segment were steady especially for the purchase of residential property.
“This had grown consistently at 8.9 per cent since October 2017,” it noted.
MIDF Research further noted that applied loans grew at the fastest pace since November 2013, with total loans demand growing 25.4 per cent y-o-y to RM74.8 billion.
The research arm believed that this was mainly contributed by business loans demand.
“In the case for approved loans growth, it maintained its double digit growth trend since November 2017,” the research arm said.
“Loans approved in January 2018 grew 26.9 per cent y-o-y to RM32.1 billion. This resulted in a drop in approval rate to 42.9 per cent as the banks could not keep up with demand.”
The research arm believed that this bodes well for industry loans growth as the backlog in loans demand will spill over into the coming month.
Meanwhile, for current account, savings account (CASA) deposits growth, MIDF Research noted that it appears robust as it expanded 8.5 per cent y-o-y to RM493.4 billion as at January 2018.
“CASA growth has not fall significantly below the eight per cent mark since March 2017.”
The research arm believed that the expansion in CASA could be driven by corporate and small and medium enterprise (SME) CASA.
On asset quality, which remained stable which gross impaired-loan (GIL) ratio coming in at 1.54 per cent, MIDF Research opined that this could mean that the possibility of undue stress to the banking asset to be minimal.
As such, the research arm believe that this might allow for banks to continue accelerating its lending in the coming months.
“Judging from the current trend of loans applied and approval, we expect that loans growth will pick up in 2018 from 2017 level.
“The loans applied and approval will provide a steady loans pipeline at least in the first quarter of current year 2018 (1Q18),” MIDF Research affirmed.
MIDF Research also expected that the loans demand would continue on its current trend.
“This is especially for the mortgage segment as we understand several property developers are targeting to develop affordable housing.
“In addition, the possibility of business loan picking up will further fuel loans growth.”
For 2018, the research arm expected a loans growth of six per cent y-o-y.
Overall, MIDF Research saw no compelling reason to change its ‘positive’ view of the banking sector’s performance in 2018.
The research arm believed that the continued domestic economic performance in CY18 and stable employment environment will drive loans growth.
“Meanwhile, the OPR hike by Bank Negara Malaysia will give a temporary boost in margin,” the research arm said.
“With higher demand and approval for loans, we believe the banking sector will be able to maintain its earnings potential.”