PETALING JAYA: As economic activities resume, the banking industry’s lending has also seen a pick-up.
After hitting a trough of 2.5% year-on-year (y-o-y) as at end-August 2021, loan growth continued to recover from 2.9% y-o-y at end-September to 3.3% y-o-y at end-October, thanks to the reopening of the economy and relaxation of Covid-19 movement restrictions.
There was an uptick in y-o-y loan applications across most asset classes. And encouragingly, working capital loan application turned positive - showing a growth of 2.5% y-o-y on a three month moving average after having contracted over the past 13 consecutive months, said Maybank Investment Bank (IB) Research.
The research firm said the annualised loan growth of 3.7% as at end-October 2021 is tracking to its target of 3.8% for the year, while CGS-CIMB Research said the numbers were within its projected loan growth of 2.5-3.5% for 2021.
“The lockdowns in the second quarter and third quarter of 2021 disrupted banks’ lending activities. However, we think that lending has gradually normalised since the relaxation of movement restrictions in September.
“Our view is supported by the turnaround in the growth of the industry’s loan applications and approvals to a y-o-y expansion of 4.2% and 2.2% respectively in October (from declines of 7.3% y-o-y for loan applications and 6.3% y-o-y for loan approvals in September),” said CGS-CIMB Research.
The research firm said it is also encouraged that the industry’s gross impaired loans (GIL) declined by 2.7% month-on-month to RM28.7bil in October, although this was contained by the repayment assistance offered by banks to their borrowers.
This lowered the GIL ratio from 1.57% at end-September to 1.52% at end-October. The GIL ratio of 1.52% at end-October was lower than the pre-Covid-19 level of 1.56% at end-December 2019.
However, given the lingering credit risks from the pandemic, CGS-CIMB Research projects a higher GIL ratio of 2% for end-December 2021 and 1.8-2% for end-December 2022.
Where deposits are concerned, growth was slower marginally at 4.1% y-o-y in October.
The current account savings account growth (Casa), meanwhile, moderated further to single digit (+9.4% y-o-y) after 19 months of double-digit growth, which topped out at +24.8% y-o-y in February 2021.
Taking into account inflation, Maybank IB said that the negative real return on deposits was a larger -1.3% compared to -0.6% in September 2021.
Meanwhile, MIDF Research said that net interest margin (NIM) is unlikely to see much uptick until an overnight policy hike (OPR) given the limited room for cost of fund optimisation and slower growth of Casa anticipated.
On the whole analysts are positive on the sector’s long-term outlook but said that dividends may suffer from higher provision allowances and the Prosperity Tax or Cukai Makmur in the near term.
They expect banks to continue with their conservative provisioning to offset headwinds relating to asset quality following the ending of the bank moratorium in the first quarter of 2022.
A key downside risk is the possibility the Omicron variant posing a downside risk to economic growth, which in turn, could cause banks to register higher-than-expected loan loss provisioning and weaker loan growth.