Lenders will shift to business loans to boost earnings

Recent decade-high unsold properties would force some lenders to strategise their portfolios

By NG MIN SHEN / Graphic By TMR

THE expected slower mortgage segment and property glut will force lenders to seek other revenue streams especially from business, small and medium enterprise (SME) and corporate loans to sustain their earnings for this year.

As of the end of last year, housing loans accounted for RM487.7 billion of the banking system’s RM1.58 trillion total loans. The figure was higher compared to RM455.2 billion total residential loans at the start of 2017.

But the recent decade-high unsold properties would force some lenders to strategise their portfolios and focus on other earnings stream besides mortgages, and ride the economic boom and business expansions.

An investment bank-backed analyst said banks’ income would not be greatly affected by the rising number of unsold properties though mortgages are likely to slow in 2018.

“Loans growth last year mostly came from mortgages. This year, general trade conditions are expected to improve. So, banks should see a greater growth in working capital.

“Housing loans will probably see slower growth this year, but that’s not to say things are bad altogether,” the analyst told The Malaysian Reserve (TMR).

According to the central bank’s data, loans applied for the purchase of residential property in December 2017 stood at RM15.91 billion, down from RM21.26 billion recorded in November 2017 and RM14.54 billion in December 2016.

Meanwhile, loans approved for the purchase of residential property in December 2017 amounted to RM7.33 billion, down from RM9.4 billion approved in November 2017 and RM6.36 billion in December 2016.

The domestic banking industry recorded a year-on year loan growth of 4.1% in 2017, slower than 5.3% in the preceding year, which the analyst said was slightly worrying as loan growth is typically double that of gross domestic product growth.

“Last year, a lot of economic growth was driven by external trade. So, in theory, this should filter down to consumers.

“Companies should be doing better and be able to increase capacity, while spending should increase.

“In practice, it’s not happening, but consumer sentiment should catch up with economic indicators this year, once the elections are over and people are less wary,” the analyst said.

The analyst said despite the gloomy outlook due to the glut in the property sector and some developers failing to secure 100% sales for their projects, they are still selling about 60% to 70%.

Borrowers with good credit should still be able to get loans, the analyst said, adding that banks continue to look at applicants’ debt-to-service ratios when determining eligibility for a housing loan.

Recent reports showed that the total unsold residential properties — including overhang and under-construction units — stood at a decade-high of 146,497 units as of the second quarter of 2017 (2Q17), up from 130,690 units as at 1Q17.

During 2Q17, nearly 82% of the unsold units were priced above RM250,000.

The maximum affordable house price in Malaysia is estimated to be RM282,000.

However, the actual median house price is RM313,000, above the buying power of many Malaysians.