After the doldrums, the sector is expected to pick up momentum in the second half of next year with a recovery in, among others, oil prices as well as a clear direction on US policies especially on its interest rates
KUALA LUMPUR: RHB Research Institute expects slower overall loan growth in 2017 due to slower household loan growth and moderating business sectors as the economy slows down.
The research house envisages M3 growth, including Islamic investment accounts, to remain modest at 4% in 2017 from an estimated 4%-5% for 2016 and compared to 2.6% in 2015.
“Meanwhile, loan growth is expected to slow down to around to 3.7% in 2017 from an estimated 4.3% in 2016 and compared with 7.9% in 2015,” it said on Tuesday.
RHB Research said this was due to slower household loans due to more stringent rules on lending and curbs on the property market and also moderating business loans from weakening economic growth.
It also expects headline inflation to remain manageable at 2.5% in 2017, albeit up slightly from the +2% estimated for 2016.
“This, coupled with the rising currency volatility, suggests that the central bank is likely to be cautious and keep the overnight policy rate (OPR) unchanged at the current level of 3% for this year,” it said.
It added that growth of the broader money supply, M3, slowed to 2.9% on-year in Nov 2016. This was from +3.2% in Oct 2016 and compared to +2.2% in September 2016.
This was on account of a slowdown in demand for funds by the private sector and sharper drop in external operations during the month under review. These were, however, partly mitigated by the pickup in demand for funds by government operations in December.
Including the Islamic investment accounts, M3 eased to 4.2% YoY during the month from +4.9% in Oct 2016. In contrast with the slowdown in M3, narrow money, M1 growth gained pace to 4.5% YoY in Nov 2016 from +2.7% in the previous month.
Loan growth gained pace to 5.3% on-year in November 2016 from +4.5% in October 2016. This was on the back of a pick-up in corporate loans, while household loans remained stable during the month.
“As it stands, corporate loans grew at a quicker pace of 4.6% on-year in November 2016 from +2.9% in October 2016. This was mainly due to a pick-up in loans extended to the wholesale and retail sectors and a smaller decline in loans extended to the manufacturing sector.
“A rebound in loans extended to the transportation and storage sectors also helped. At the same time, household sector loans remained stable at 5.4% on-year in November 2016, unchanged from the previous month,” it said.
RHB Research explained that this was as an increase in loans extended for purchases of securities and non-residential properties was offset by the slowdown in loans extended for personal use and credit cards.
Meanwhile, loans for the purchase of passenger cars fell by a wider margin during this period. As a result, consumption credit slowed to 0.8% on-year in November 2016 from +1.2% in the preceding month.
On the other hand, total deposits slowed to 1.4% on-year in November 2016 from +1.9% in October 2016. As it stands, deposits from the Government and business enterprises fell by a wider margin, while deposits from financial institutions moderated during the month under review.
These were, however, mitigated by the slower rate of contraction in deposits from state governments and statutory authorities, while individual deposits gained pace in November 2016.
As loans grew at a quicker pace compared to deposits on a month-on-month basis, the banking system’s loan deposit ratio rose to 89.2% in November 2016, that is the highest level in a year.
This was compared with 88.7% in the previous month and compared to 88.6% in October 2016
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