Marginal business loan pickup reflects pre-GE14 caution

Business loans have not picked up as much as expected although the growth for household loan remains stable

by NG MIN SHEN / TMR file pix

CLARITY on policy trajectory post election will help the business community revitalise investments and consumption, and thus putting the country’s economy on a firmer growth path, analysts said.

Loan applications and approvals, particularly for working capital, have shown signs of slowing due to uncertainty over the outcome of the 14th General Election (GE14) on Wednesday, which is expected to be closely contested.

Business loans have not picked up as much as expected although the growth for household loan remains stable.

“We will likely see a pickup in corporate activity after the election results are announced and after there’s more clarity on what will happen next,” a banking industry analyst told The Malaysian Reserve (TMR) under the condition of anonymity.

For the first three months of the year, working capital numbers have not shown much improvement. However, because the focus is fixed on areas such as affordable housing and the purchase of residential properties, the growth for household loans has been somewhat stable.

“Growth has mainly been held back by working capital and loans for the purchase of commercial properties, which again tie in to businesses,” the analyst said.

Affin Hwang Investment Bank Bhd senior director and head of equity capital markets Arvin Chia said firms have largely priced the election in, with companies and markets continuing business as usual.

“The general election could well be a factor, but it also depends on what industries the businesses are tied to. Those dependent on government contracts, such as the construction players, may have some level of uncertainty. However, for general businesses — particularly those who export — are taking it in their stride,” he told TMR.

The banking sector, in particular, has been feeling the slowdown in business spending in the past few months.

In March 2018, the banking industry reported loan growth of 4.4% year-on-year (YoY) compared to 4.5% in February, as per data from Bank Negara Malaysia (BNM).

Although non-household loan growth slid to 2.9% from 3.2% in February, household loan growth remained stable at 5.6% YoY in March.

Non-residential property loan growth, however, skidded to 1.6% YoY during the month under review from 2% in the month prior, while working capital loan growth shrank to 0.3% against 0.7% in February.

According to AmInvestment Bank Bhd, despite the slight growth of 0.02% YoY for industry-wide applications versus a 5.8% decline YoY in February, loan applications were still slow for March.

Household loan applications slipped further with an 8.1% slide YoY in March, although non-household loan applications picked up with an 11.4% growth YoY compared to the 7.2% contraction in February.

Growth for the working capital loans shrank to 0.3% YoY against 0.7% in February, while applications for working capital rose in March compared to the previous month.

In a research note, Maybank Investment Bank Bhd observed that loan approvals contracted 7.6% YoY in March. For the first time in 18 months, on a threemonth moving average, mortgage applications contracted 1.2% YoY.

The auto loan applications, however, fell 5% YoY for the sixth consecutive month.

Commercial property loan applications continued to rise, but the average approval rate dropped to 29% in March.

“Although it’s too early to tell what the forecast will be, we would monitor these trends for slower loan growth ahead,” it said.

In a recent report on local banks, Nomura Group Global Equity Research said loans demand would likely increase after GE14, also underpinned by seasonal trends, whereby growth is stronger in the second half of the year.