Loan growth continues to slow down

PETALING JAYA: Total loan growth has continued to slow down, expanding 4.2% year-on-year (y-o-y) in June from 4.5% in May this year.

The fall in loan growth was weighed by the continued decrease in automotive loans, which had contracted 0.3% y-o-y in June, while non-residential property lending slowed to 2.7% y-o-y from 3.1% y-o-y in May, according to Maybank Research.

It said that overall household loan growth dropped to 4.9% y-o-y in June 2019 from 5.1% y-o-y in May.

Non-household loan growth was 3.3% y-o-y versus 3.7% y-o-y in May.

Maybank Research noted that the turnaround in loan applications of +13.3% y-o-y in May was shortlived and loan applications contracted 11.7% y-o-y in June.

“On a three-month moving average basis, loan applications were still in positive territory, though expanding at a slower pace of 2.3% y-o-y from 4.5% y-o-y in May 2019, ” it said.

It noted that one bright spark was in mortgage loan applications, which grew 8.4% y-o-y, on a three-month moving average basis in June 2019.

“This compensated for the 21.3% y-o-y contraction in auto loan applications which is in its ninth consecutive month of negative growth, ” it said.

Meanwhile, CGS-CIMB said that it expects the industry’s loan growth to improve in the third quarter of this year, given the strong loan applications/approvals in the Apr to May 2019 period.

“However, if the leading loan indicators continue to be lacklustre in the coming months, there could be downside risk to our projected loan growth of circa 5% for 2019.

A 1% point shortfall in loan growth from our forecast would lower our projected financial year 2019 projected net profit by 0.8%, based on our estimates, ” it said.

CGS-CIMB said that the industry’s gross impaired loan (GIL) ratio increased from 1.53% at end-May 2019 to 1.57% at end-June 2019 while the loan loss coverage fell from 94.1% to 91.1% over the same period.

“We believe there are risks for a further increases in the GIL ratio to our projected 1.8% by end-2019, with the risks coming from the property and oil and gas sectors as well as those companies negatively impacted by the US-China trade tensions, ” CGS-CIMB said

CGS-CIMB said that the negative takeaway from June 2019 was the deterioration in loan growth and asset quality.

The research house continues to rate the banking sector as “neutral, ” premised on the concerns over margin contraction due to the cut in interest rates and competition for deposits and an uptick in credit costs in 2019.

“On the flip side, banks’ dividend yield is attractive at 4.2% for 2019.

“RHB Bank remains our top pick for the sector, ” CGS-CIMB said.

Source: TheStar