M&A noted that loan growth in March was lower at 6.4% against 7.4% in February from the slowdown in household and business loans.

PETALING JAYA: The banking sector is expected to experience lower loan growth and tight liquidity this year, which would shrink banks’ margin, according to analysts.

“We expect soft earnings for banking sector in 2016 with slower macro-economic condition set to weigh banking sector performance,” M&A Securities said in a note yesterday.

M&A noted that loan growth in March was lower at 6.4% against 7.4% in February from the slowdown in household and business loans.

Loans approval weakened further in March, dropping by 24.1% from 17.3% in February as banks tightened approvals and requirements.

It said that the reduction in Statutory Reserve Requirement (SRR) from 4% to 3.5% may not bring significant impact.

“However, we expect the reduction in SRR will assist banks to relieve its cost of funds, albeit only marginally,” it said.

Household loans approval posted a drop of 21% from 23.5% in February.

The research house expected loans by business segment to continue growing in steady pace, supporting overall loans growth in 2016.

Meanwhile, KAF Research expected the banking sector’s profit to tick up by 1% in the first quarter.

“We expect incomes to drop sequentially given the seasonally slow first quarter, but this should be more than offset by expected cost savings from the various initiatives undertaken, particularly in the second half last year, in addition to generally better cost control at the likes of Maybank and Affin,” it said. While loan growth has slowed, the research house noted that there should be a pick-up in bond holdings and margins should be more stable.