UOB Kay Hian Malaysia Research envisaged lacklustre loan growth for 2017, at about 4.5% to 5% due to the double-digit contraction in loan approval trend over the past 12 months.
PETALING JAYA: Analysts have mixed views on the prospects of the banking sector amid a moderating growth environment and challenging business outlook.
CIMB Research retained its “overweight” recommendation on the sector as it projected loan growth of 5% to 6% for 2017. The research house opined that the loan growth for 2016 would hit the lower end of its 5% to 6% projection.
While an acceleration in business loan growth contributed to the sequential improvement in overall loan growth for November 2016, the leading loan indicators remained weak, falling by 0.3% year-on-year (y-o-y) for loan applications and 4.6% y-o-y for approvals.
The weak conditions were primarily due to the decline of 10% to 17% y-o-y in applications or approvals of working capital loans and a decline of 9% to 11% y-o-y in auto loans. However, the applications for residential mortgages surged by a strong 11.5% y-o-y in November 2016.
In 11M16, the gross impaired loan (GIL) ratio for the sector rose by only three basis points.
“Barring any spike in the GIL ratio in December 2016, the industry’s GIL ratio could outperform our projected 1.8% for end-2016.
“On a conservative note, we forecast an even higher GIL ratio of 2% for end-2017,” said CIMB Research in its note.
However, UOB Kay Hian Malaysia Research envisaged lacklustre loan growth for 2017, at about 4.5% to 5% due to the double-digit contraction in loan approval trend over the past 12 months.
The research house highlighted that overall deposit growth continued to be unexciting as it expanded only 1.4% y-o-y in November 2016. The key drag to overall deposit growth was catalysed by the contraction in business deposits, which was 4.5% lower y-o-y.
UOB Kay Hian said that despite the continued contraction of loan approval and application, the loan approval rate for residential property has stabilised at 44%.
“We believe this was driven by a greater focus on affordable-housing launches and more stringent mortgage application processing at the very early stages of the loan application,” said UOB Kay Hian, which maintained its “market weight” call on the banking sector.
Meanwhile, Kenanga Research was “neutral” on the sector and the system loan growth as it expected the banks to continue being cautious on asset quality and as the approval rates remained tight.
The sector’s loan-to-deposit ratio inched higher by 79 basis points to 89.6% month-on-month (m-o-m) in November 2016, while the system excess liquidity to total deposit base shrunk slightly by 80 basis points to 10.4% m-o-m.
The research house noted that following the widening interest spread between average lending rate and three-month fixed deposit rate, the stiff price-based competition might be slowing down.
“With demand for loans expected to be subdued, it is likely that competition for deposits will be marginal,” said Kenanga Research.
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