Accommodative rates will continue to support resilient household loans

PETALING JAYA: Accommodative interest rates will continue to support resilient household loans, going forward, mitigating the moderation in business loan spending, says Kenanga Research.

It expects loans to grow at 4.5% to 5% year-on-year (y-o-y) for 2020, driven by household loans at 5.3% to 6.9% and business loans at 2.8% to 3.8%, from a fiscal push expected in the second half of this year.

“While we expect moderation in loans, mostly from business and the service sector due to the effect of the novel coronavirus in the first half of 2020, we expect the household loans segment to be resilient on account of the benign interest rate regime.

“The improvement in asset quality, coupled with declining loan loss provisions, indicate the banks’ confidence in their asset quality which will support a higher risk appetite for banks, especially from household loans, ” said Kenanga Research.

Since August 2019, asset quality continued to improve with both gross impaired loans (GIL) and net impaired loans (NIL) shedding nine basis points and six basis points to end at 1.51% and 0.96%, respectively, for December 2019.

The decline in GIL was broad-based, notably from business loans shedding 14 basis points month-on-month to 1.92% while household loans shed three basis points to 1.12%. In addition, loan loss provisions in 2019 declined 4% y-o-y while loan loss coverage remained resilient at 89.6%, contributing to further confidence in asset quality.

In 2019, loan growth moderated to 4%, as compared to 2018’s loan growth of 7% y-o-y.

Kenanga Research noted improvements in December 2019 when loans picked up, adding 30 basis points quarter-on-quarter (q-o-q) to 1.4%, with household and business loans adding 30 basis points and 20 basis points, respectively, to end at 1.6% and 1.1%, q-o-q.

Source: TheStar