Banking to chart higher loan growth in 2022

It was shielded from severe financial distress, having entered the pandemic with a strong position 

By ASILA JALIL & NUR HANANI AZMAN / Pic BLOOMBERG

THE banking sector is poised to chart higher loan growth this year with the gradual reopening of all economic sectors. 

MARC Ratings Berhad head Ratings Portfolio for Financial Services Institutions Mohd Izazee Ismail said the firm maintains a stable outlook on the Malaysian banking sector as it stayed resilient amid the pandemic. 

“Despite the challenges posed by the Covid-19 pandemic, the domestic banking industry was shielded from severe financial distress, having entered the pandemic with a strong position. 

“With the gradual reopening of all economic sectors and lifting of restrictions, we expect the banking industry to gain growth momentum and chart higher loan growth in 2022. Nonetheless, any change in the pace of recovery as a result of the impact of the new Covid-19 variant could result in a setback to growth,” he told The Malaysian Reserve recently. 

Impairment numbers for the sector are not expected to deteriorate significantly over the near term with the relief measures and expected continued stance of the government in aiding troubled borrowers. 

However, he noted that loan defaults are expected to rise over the next few years as the relief measures gradually rollback. 

“We expect further earnings upside for 2022 on the back of continued economic recovery and lower impairment charges with the pandemic-related provision cycle to end soon. A possible increase in the Overnight Policy Rate in the second half of 2022 would give a further boost to the banks’ profit. 

“Although banks’ earnings performance is expected to improve, the recently announced Cukai Makmur will put some dent on the banks’ retained earnings. Under the Cukai Makmur, companies with pretax profit of more than RM100 million will be taxed at a higher rate of 33% (compared to 24% currently),” he added. 

Meanwhile, in a research report, MIDF Amanah Investment Bank Bhd (MIDF Research) forecasted the industry loan growth for this year to stand at 5%. 

The projection is made amid assumptions of improved spending outlook and economic growth, as well as banks seeking to take advantage of excess liquidity. 

“We are counting on business loans to sustain its high level of growth, in tandem with consumer spending to ramp up retail loans,” it said in a note recently. 

Total loans growth for the sector grew 4.7% year-on-year (YoY) as at January, the steepest growth since pre-pandemic times. 

MIDF Research noted while retail loans growth rates have spiked recurrently over the pandemic, business loans are showing a more sustained, even growth. 

Retail loans grew sharply by 5.2% YoY driven by an increase in residential mortgages, auto and personal use loans. 

Business loans have grown 4.3% YoY in January — the highest since the pandemic began — largely driven by strong working capital growth, which jumped up to 7% from November 2021. 

“Despite a decline of -19% month-on-month, January 2022 loan applications retain a respectable 10% YoY growth, largely driven by passenger car, residential property and working capital loan applications. 

“On a sequential month basis, contractions occurred in residential mortgages, working capital and auto loans. January 2022 loan approvals registered an impressive growth of 24.4% YoY, translating into a loan approval rate of 47.9%,” it added. 

The majority of bank institutions in Malaysia recorded positive growth in the fourth quarter ended Dec 31, 2021 (4Q21), following a recovery across all segments and markets.
The country’s largest lender 

Malayan Banking Bhd (Maybank) registered a 33.8% rise in net profit in the 4Q21 to RM2.05 billion from RM1.53 billion attributable to the increase in its net interest income and Islamic banking income which rose RM566.5 million or 12.7% to RM5.02 billion. 

Maybank’s revenue for the quarter was down by 8.1% YoY to RM11.26 billion due to the decrease in other operational segments. 

CIMB Group Holdings Bhd saw its net profit for the 4Q21 jump close to four times to RM854.51 million from RM214.98 million a year ago, underpinned by significantly lower provisions. Revenue for the quarter fell 1.68% to RM4.59 billion from RM4.67 billion a year ago. 

Public Bank Bhd, the country’s third-largest lender, posted a 20.3% increase in net profit to RM1.38 billion for the 4Q21 from RM1.15 billion a year ago, mainly due to lower loan impairment allowance of RM274.3 million and higher net interest income of RM149.9 million. 

Quarterly revenue, however, fell by a marginal 1.2% to RM4.86 billion from RM4.92 billion. 

Hong Leong Bank Bhd’s net profit for 2Q22 rose to RM738.59 million, which was 10.11% higher YoY on 2.1% lower revenue of RM1.37 billion. 

“The 2Q of our financial year saw the reopening of the economy and subsequent pickup in economic activities which correspondingly resulted in more demand from clients for loans/financing, as such, we were able to maintain the growth momentum we have seen over the past few quarters,” said Hong Leong Bank group MD and CEO Domenic Fuda in a statement. 

RHB Bank Bhd’s net profit for the 4Q21, rose 43.9% YoY to RM631.17 million due to lower expected credit losses. Revenue for the quarter slipped 6.1% YoY to RM2.89 billion. 

AMMB Holdings Bhd reported a nearly 53% jump in net profit for the 3Q22 to RM403.29 million against RM263.83 million in the previous corresponding quarter despite higher loan provision caused by exposure to the local oil and gas industry. 

The banking group’s quarterly revenue went up marginally to RM1.183 billion from RM1.176 billion, according to AMMB’s filing with the bourse. 

Meanwhile, Affin Bank Bhd achieved a net profit of RM206.85 million for 4Q21, from a net loss of RM9.36 million a year ago due to improved Islamic banking income, lower operating expenses and allowance for impairment losses. 

Despite the improved net profit, the group’s quarterly revenue declined 7.84% to RM572.13 million from RM620.8 million in the same quarter of the previous year. 

Alliance Bank Malaysia Bhd’s net profit increased by 50.3% to RM151.02 million in 3Q21 from RM100.46 million in 3Q20, mainly due to higher interest income and lower credit cost. Revenue also rose to RM480.18 million from RM475.7 million previously. 

Nevertheless, Bank Islam Malaysia Bhd’s net profit for the 4Q21 dropped 55.06% to RM79.64 million from RM177.21 million in the same period last year following a higher allowance charged for impairment on financing and advances during the current period mainly due to expected credit loss provided to one non-retail customer which turned impaired in the period. 

Revenue for the quarter was up 7.57% to RM816.28 million from RM758.81 million in the same period a year ago.