Penjana stimulus a boon to banks’ loans growth | Malaysian Institute of Estate Agents

Penjana stimulus a boon to banks’ loans growth

2020-09-01

KUCHING: Malaysia’s banking system loans growth as at July 2020 accelerated to 4.5 per cent year on year (y-o-y) from 4.1 per cent and 3.9 per cent seen in June and May respectively.

MIDF Amanah Investment Bank Bhd (MIDF Research) believed the faster pace loans growth was driven by the Penjana stimulus as loans for purchase of residential properties came in higher at 7.3 per cent y-o-y while auto loans turned to expansion at 0.4 per cent y-o-y.

“Unsurprisingly, retail loans grew pace. With the Penjana stimulus, retail loans grew at a faster pace of 5.1 per cent y-o-y to RM924.5 billion versus RM914 billion seen last month,” it analysed in a report yesterday.

“Meanwhile, business loans expanded at a slower pace of 3.2 per cent y-o-y to RM796.4 billion. We opine that this could be due to prevailing cautious sentiment in businesses due to the lack of long term visibility of business conditions.”

Loans applied grew for the second consecutive month at 5.9 per cent y-o-y following the Penjana initiative as predicted by MIDF Research.

Main drivers for the loans applied growth were auto loans (63.7 per cent rise y-o-y to RM9.7 billion) and mortgages (19.3 per cent y-o-y rise to RM29.9 billion). However, year-to-date loans application continue to contract, dropping 10.6 per cent y-o-y to RM447.9 billion due to decline between March to May.

“Banks have become more cautious though,” MIDF Research said. “While loans application saw growth in past two month, loans approvals continue to decline since March, albeit at a lower rate.

“Loan approval fell by 14.7 per cent y-o-y but loans approvals for auto loans grew 40.5 per cent y-o-y to RM5.3 billion and for mortgage fell lower at 18 per cent y-o-y to RM9.1 billion.

“We believe that although there was some recovery in loans demand, banks remains cautious given the uncertainty post loan moratorium.”

As for asset quality, the research team at Kenanga Investment Bank Bhd (Kenanga Research) saw that system gross impaired loans (GIL) continued to improve.

This comes as banks have seen borrowers taking advantage of the moratorium to catch up on repayments and regularise their accounts leading to the improvement in asset quality, together with recovery efforts by the banks.

“Of note is that the monthly decline in system GIL was due to the household segment (auto and residential mortgages) whereas business GIL was stable,” it said in its own notes.

“Consequently, there was a slight improvement in system GIL ratio to 1.43 per cent from 1.46 in June. Except for an uptick in impaired loans for the wholesale & retail trade, hotels and restaurants as well as transport, storage and communications sectors, asset quality was broadly better across the board.

“System loan impairments reserve was up one per cent month-on-month despite the decline in GIL and hence, system loan loss coverage rose further to 95.5 per cent, as compared to 92.9 per cent in June 2020.”

With economic activities picking up, the bulk of the OPR cuts largely done and modification losses taken up during the June reporting quarter, Kenanga Research said the key challenge for banks’ earnings shifting from predominantly revenue-related (higher trading gains from lower interest rate did helped to cushion revenue pressures) to asset quality.

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