Petaling Jaya: Research houses are generally maintaining their positive outlook on the banking sector, underlined by the continued growth of loans in September and the expectation that banks will continue to benefit from the further projected overnight policy rate (OPR) hikes by Bank Negara this month.
With loans growing 6.4% year-on-year (y-o-y) in September 2022, Kenanga Investment Bank (KIB) Research reported that both household and business loans, which grew 6.4% and 6.2% respectively y-o-y, have benefited from better economic conditions compared to last year.
However, September’s loan growth was fractionally slower y-o-y compared to August at 6.8%, in what Hong Leong Investment Bank (HLIB) Research called a “high base effect”. Both HLIB Research and KIB Research are forecasting a 6% to 6.5% loan growth for the whole of 2022.
HLIB Research, in a note released yesterday, said it expects net interest margins for banks to broaden from further OPR hikes, but the magnitude may be capped by the downward normalisation of current accounts-savings account mix and deposit competition.
“Nonetheless, banks are still net beneficiaries of the interest rate upcycle,” it said.
It reported that loan applications had slowed to 34.1% y-o-y against 51.4% in August, brought about mainly by a decline in household loan growth, which was at 21.2% y-o-y for September and 80.9% in August.
“Similarly, loan approval followed suit and decelerated to 37.3% versus 82.3% in August due to more restrictive financing to both households and businesses,” it added.
Concurring with the slowing down of loan growth sentiment, CGS-CIMB Research is projecting a more moderate increase in lending to be between 5% and 6% for the whole of 2022, especially in the fourth quarter of 2022, on the back of hikes in the OPR and heightened inflation.
Interestingly, it also reported that the industry’s gross impaired loan (GIL) ratio rose from 1.68% at the end of December 2021 to 1.85% at the end of July 2022, as banks unwind the repayment assistance they offer to borrowers.
“This could cause loan defaults among borrowers whose financial position had been severely impaired by the Covid-19 outbreak.
“On a positive note, we see signs of stabilisation as the GIL ratio had fallen marginally from the level in July 22 to 1.82% at end of September 2022,” its analyst Winson Ng said.
A GIL ratio is calculated by dividing the non-performing loans of a bank by the total lending it has distributed.
HLIB Research is also expecting GIL to inch north, but said it is not too concerned as it believes the sector would have made preemptive provisions in 2020 and 2021 to cushion the GIL impact.
“Deposit growth has also held firm at 7.4% y-o-y for September as compared to August at 7.5%,” it noted.
