Domestic loan growth to slow down to 4.5% this year


DOMESTIC banking loan growth is projected to come in at between 4% and 4.5% this year as economic expansions will likely slow to 4.5% or less, said analysts.

AmInvestment Bank Bhd (AmInvest) predicts the overall industry loans to grow 4% in 2020 on GDP growth of 4% to 4.3%.

“We expect the sector’s core earnings to grow by 5.5% in 2020, supported by a modest income growth of 4.6% with higher net interest income from loan expansions and modest growth in non-interest income of 3.4%,” it wrote in a recent note.

The federal government’s mild expansionary budget for 2020 is expected to support private consumption, although household and non-household loan growth will likely remain soft in 2020, it added.

The research firm is also not discounting the possibility of another Overnight Policy Rate cut of 25 basis points (bps) in the first half of this year, thus reducing the benchmark interest rate further from 3% to 2.75%.

This will be data-dependent, as well as depending on global economic developments, while net interest margins (NIMs) for banks in 2020 are expected to be flat from 2019.

Deposit competition will likely ease this year as loans are not likely to accelerate significantly from 2019, while most banks have already achieved the minimum net stable funding ratio requirement of 100%.

“Meanwhile, the recent statutory reserve requirement cut of 25bps implemented on Nov 8 has further improved the system’s liquidity, consequently easing the Kuala Lumpur Interbank Offered Rate modestly,” AmInvest said.

The research house retained its ‘Overweight’ stance on the banking sector for 2020, underpinned by compelling valuations and dividend yields.

Its top picks are Hong Leong Bank Bhd, Malayan Banking Bhd (Maybank) and RHB Bank Bhd.

Meanwhile, Maybank Investment Bank Bhd (Maybank IB) maintained a ‘Neutral’ recommendation on the sector, with ‘Buy’ calls on CIMB Group Holdings Bhd, RHB Bank, AMMB Holdings Bhd (AmBank) and BIMB Holdings Bhd.

“Loan growth was stable at 3.7% year-on-year (YoY) in November 2019 and will likely end the year within the 3.6% to 3.8% range. This would be the slowest industry loan growth since 2007,” the firm said.

Mortgage application trends have been mildly positive of late and should provide support to loan growth into 2020.

However, business lending needs to pick up the pace to support overall domestic loan growth, which Maybank IB forecasts to come in at 4.5% for 2020.

For 2019, overall banking system NIM have fallen 7bps to 2.12%, stemming from weak asset yields and overall higher funding cost, Affin Hwang Investment Bank Bhd said.

“We maintain our ‘Neutral’ sector view as we foresee a contraction in sector core earnings per share growth of 1.2% YoY in 2019, and a further decline of 1.8% YoY in 2020 and flat growth in 2021,” it wrote in a recent report.

Loan growth in the fourth quarter of 2019 will be driven primarily by residential properties and other household loans, as well as manufacturing, retail and transportation sectors.

The research house’s top picks are AmBank, AEON Credit Service (M) Bhd and ELK-Desa Resources Bhd.