Monday, August 10

Cancellation of various mega projects not detrimental for banking sector

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KUCHING: The overall impact of the cancellation of various mega projects by the new Pakatan government has been projected by analysts to not be detrimental on the banking sector.

Research firm Affin Hwang Investment Bank Bhd (AffinHwang Capital) believed that the overall impact on the banking sector will not be detrimental as banks’ exposure to those cancelled remains limited.

“We understand that most of the funding for those projects cancelled were from overseas and funding was raised from the bond market,” Affin Hwang said.

“Even so, we believe that contractors involved in the initial phases would get their compensation from the government for works done.”

Affin Hwang remained upbeat on the prospects in 2018E, as post-election confidence within the country on the new Pakatan coalition is gaining grounds and is a re-rating factor for business activities, such as new foreign direct investments (FDIs), manufacturing capacity expansion, property or land transactions, retail business expansion.

The research firm noted that it is also a re-rating factor for consumer spending in light of the zero-rating of the goods and services tax (GST).

“We believe that favourable policies in place will stimulate the purchases of big-ticket items such as passenger cars and affordable property as well as small ticket items, of which are the key drivers behind our country’s gross domestic product (GDP) at circa six per cent.”

As such, Affin Hwang believed that the outlook in the second half of 2018 (2H18) will be better for banks and the research firm kept its loan growth target of five per cent unchanged, subject to a potential review.

“In our view, 2018 will likely see a more favourable macro outlook with GDP growth from increased exports and a recovery in commodity prices.

“In fact, our house view is for the ringgit to touch RM3.80 to the US dollar by end-2018 (average RM4.20), and this should bode well for consumer and business confidence levels and encourage spending.”

Affin Hwang’s views were anchored upon its economist’s forecasts which saw a GDP growth forecast of 5.3 per cent for 2018 (2017: 5.9 per cent), underpinned by a potentially higher oil price of US$68 per barrel by end-2018.

The research firm’s economist’s forecasts also projected private consumption at 6.5 per cent (Bank Negara Malaysia’s forecast: six per cent) and private sector capital investment at 9.3 per cent (BNM’s forecast: 4.1 per cent).