Loan growth up to 5% in 2022 despite rising interest rates, says RAM Ratings

RAM Ratings Services Bhd projects full-year loan growth at 4.5%-5% in 2022 despite rising interest rates, driven by the gradual reopening of the economy.

In a statement today, the rating agency said banks’ core earnings before tax would see some upside this year, underpinned by more moderate impairment charges and further net interest margin expansion.

However, bottom lines would be weighed down by Cukai Makmur, the one-off prosperity tax, while slower global economic growth amid the Russia-Ukraine war, the impact of higher inflationary pressures on consumption spending and protracted labour shortages continue to pose downside risks.

RAM Ratings observed a better showing in the banking industry’s profitability in the first quarter of 2022 (1Q22).

In March 2022, the industry’s loan growth largely sustained its momentum at 4.6% year-on-year, supported by stronger household lending while business loan expansion moderated.

Its co-head of financial institution ratings Wong Yin Ching (picture) said various loan relief programmes offered to borrowers amid the pandemic had temporarily suppressed bad loans.

“During this time, banks buttressed their loss absorption buffers by proactively setting aside more provisions through management overlays.

“In 1Q22, the average credit cost ratio of eight selected banks plunged to an annualised 18 basis points (bps) (1Q21: 57 bps; 2021: 49 bps) due to lower management overlays and even a sizable writeback seen at one bank,” she added.

The rating agency expects the banking system’s credit cost ratio in 2022 to come in at the lower end of its 40-50 bps guidance, said Wong.

“For most banks, any major provision writebacks will likely take place in 2023 as the repayment trends of borrowers who have just graduated from relief assistance will become evident only in time,” she added.

Based on the latest quarterly results briefings of the eight banks, the share of loans under repayment relief almost halved to about 8% as at end-April 2022 and the proportion will continue to fall as the government-led People’s Protection and Economic Recovery Package or Pemulih relief programme gradually unwinds.

“We note that some borrowers have requested further repayment assistance from banks upon the expiration of forbearance measures,” said Wong.

As at end-March 2022, the banking sector’s gross impaired loan ratio (GIL) stood at 1.54%, which included the impairment of two large oil and gas exposures.

Loan defaults are anticipated to trend up in the coming months as borrowers resume repayments, which may see the system’s GIL ratio reach 2.5% at the end of 2022.

“At this level, we still view the asset quality of banks to be manageable,” said Wong. – Bernama / pic TMR File