Loan applications increase in June on tax holiday hype

The surge comes mainly from loans for purchase of cars and residential properties, personal use, credit cards and working capital


MALAYSIAN S appear to be taking full advantage of the three-month tax holiday following the discontinuation of the Goods and Services Tax (GST), with loan applications surging across the banking industry.

However, the excitement is expected to tone down come Sept 1 as the zero-rated GST period makes way for the re-entry of the Sales and Services Tax (SST).

As it is, the government’s move has effectively provided a three-month tax-free period that has seen jumps in both consumer and business spending.

As per data from Bank Negara Malaysia (BNM), industry loan applications rose 13.3% year-on-year (YoY) to RM73.16 billion in June 2018 from RM64.56 billion a year ago.

In comparison, industry loan applications fell 9.2% YoY to RM75.55 billion in May 2018 from RM68.63 billion in the same month last year.

“By loan purpose, the improvement in loan applications came mainly from loans for the purchase of passenger cars and residential properties, personal use, credit cards and working capital.

“The rise was contributed largely from the improvement in applica- tion of loans by the agriculture, wholesale and retail trade, restaurants and hotels, manufacturing, real estate and household sectors,” AmInvestment Bank Bhd stated in a recent report.

MIDF Amanah Investment Bank Bhd analyst Imran Yassin Yusof said the jump is temporary, with a potential pullback in applications once the SST is re-introduced in September.

“The boost in loan applications during June will taper slightly in July and August, as June is when a lot of pent-up demand is released from borrowers who have been holding off pre-GST zero-rating.

“But there will still be strong growth in July and August,” he told The Malaysian Reserve.

The surge in loans is expected to normalise after the tax holiday ends, hence the industry loan growth forecast of 5.5% for the full year is unchanged.

“However, the three-month boost will provide a good pipeline for loan growth during the fourth quarter of 2018 (4Q18). There might be some backlog in approvals and disbursement because not all loans can be approved within one month or so, hence it’s an indicator of more loans coming into the system,” Imran said.

Household loan applications expanded 9.7% YoY in June 2018, versus an 11.6% YoY contraction in May this year, while non-household loan applications jumped 18% YoY in June 2018 versus a 5.9% decline YoY in the preceding month.

Loan disbursements grew 16% YoY in June this year, outpacing loan repayments which climbed 14.4% YoY.O n an overall basis, the banking industry’s loan growth rose 5% YoY in June 2018 to RM1.55 billion compared to 4.9% YoY in May 2018, backed by improvements in both household and non-household loan growth.

Household loan growth climbed 5.8% YoY in June this year from 5.6% the previous month, accelerated by personal loans, credit cards and loans for purchase of securities, said AmInvestment.

Non-household loans grew 4.1% YoY during the month under review versus 4% YoY in the preceding month, attributed to improvement in the manufacturing, wholesale, retail, restaurants and hotels, as well as the finance, insurance and business services sectors’ loans.

Loans for purchase of passenger cars fell 1.2% YoY in June 2018, but loan applications for the same purpose shot up 43.5% to RM8.71 billion from RM6.07 billion recorded last year, compared to a 4.7% decline to RM6.92 billion in May 2018 from RM7.26 billion in May 2017.

Loans approved for purchase of passenger cars jumped to RM5.24 billion in June 2018 from RM3.3 billion a year ago, an improvement over the 7.5% contraction in May 2018 to RM3.44 billion from RM3.72 billion last year.

Imran noted that while lending has increased on the retail side, non-household loan applications have also picked up on overall optimism in the business climate.

“Business confidence has been on the uptrend — businesses are doing better and expanding to meet demand, that’s why working capital loan applications have been very strong as well,” he said.

According to Dun & Bradstreet Malaysia’s Busines Optimism Index, overall business confidence hit a three-year high in 3Q18 at 13.17 percentage points, compared to 3.4 percentage points in the same quarter last year.

Total loans approved during June this year added 5.4% to reach RM35.15 billion from RM33.34 billion the year prior, higher than the 0.6% increase at RM31.43 billion in May 2018 from RM31.25 billion in May last year.

“This was mainly contributed by stronger approvals of loans to the manufacturing, wholesale and retail trade, restaurants and hotels, and household segments. We are seeing a significant improvement in approvals of loans for purchase of passenger cars. Also contributing were approvals for credit cards and personal loans, which were expected to pick up with stronger consumer spending taking advantage of the tax holiday,” AmInvestment said.

Industry deposit growth also improved at 5.2% YoY in June 2018 compared to 4.9% YoY in May, attributed to stronger business and individual deposits.