PETALING JAYA: Amid downside risks, the banking sector’s loan growth this year is expected to improve, buoyed by economic recovery and higher domestic demand.
Banking analysts are upbeat that loans are expected to be driven by corporate and consumer loans.
Kenanga Research said it was maintaining its loan growth forecast for this year at 4% to 5% compared with last year’s 4.5% growth.
“Loan growth will continue to be supported by a sustained economic recovery and an expected improvement in domestic demand. Furthermore, an extended period of low interest rates should also keep loans attractive, before Bank Negara probably begins its rate hike cycle in the second half of the year.
“However, downside risks have heightened due to the surge of local Omicron Covid-19 cases and the likely impact of the Russia-Ukraine conflict on a nascent global economic recovery.
“We expect the central bank to maintain the policy rate at 1.75% at its meeting this week, amid mild inflationary pressures and lingering downside risks to economic growth. Likewise, we maintain our view that the bank may begin its rate hike cycle in the second half,” the research house added.
Loan growth for the month of January 2022 increased to an almost three-year high of 4.7% against 4.5% in December 2021.
It was led by a sustained expansion in loans for residential property (January: 6.9%; December: 6.8%), the purchase of transport vehicles (January: 1.7%; December: 1.1%), and higher loan growth for the purchase of securities (January: 5.2%; December: 3.9%), which outweighed a deeper decline in loans for construction (January: 4.3% fall; December: 0.3% fall).
By sector, loan growth was mainly driven by higher credit growth for the household sector (January: 4.7%; December: 4.3%), which outpaced a slowdown in loans for finance, insurance and business activities (January: 4.7%; December: 5.9%) and the wholesale, retail trade, hotel and restaurant sector (January: 10.5%; December: 11.2%).
Month-on-month (m-o-m) loan growth remained flat at 0.5% in January (December: 0.5%), amid a marginally lower weighted average lending rate of commercial banks (January: 3.44%; December: 3.45%).
Deposit growth moderated to 5.8% year-on-year (December: 6.3%), as it contracted m-o-m (January: 0.7% fall; December: 1%).
Moderation was attributable to softer growth in demand deposits (January: 6.3%; December: 9%), a nearly two-year low, and saving deposits (January: 12.3%; December: 14.6%), which outweighed an expansion in fixed deposits (January: 1.9%; December: 1.1%).
Meanwhile, the central bank said the loss-absorbing capacity of banks in the country remained strong, with excess capital buffers of RM131.9bil as of January 2022. It said banks remained well capitalised to withstand potential stress and could continue to support credit flows to the economy.
“Capital ratios rose slightly in January 2022 due to recognition of year-end profits,” it noted. The bank said the resilience of banks continued to be underpinned by sound asset quality, where overall gross and net impaired loans ratios remained broadly stable at 1.4% and 0.9%, respectively.