PETALING JAYA: The banking sector is expected to continue to see strong growth in retail loans.

       This will be achieved with improved consumer outlook, incentives from Budget 2022 and an increased need for mobility driving the purchase of passenger vehicles and residential properties, according to MIDF Research.

       The research unit said retail loans showed strong month-on-month (m-o-m) growth in September (0.58% higher) and August 2021 (0.18% higher) – similar levels were last seen during the loosening of movement restrictions in March 2021.

       It also noted that loan growth showed marginal improvement, with September 2021 system loan growth rising 2.9% year-on-year (y-o-y) versus August 2021’s 2.5% growth and 0.96% higher m-o-m, by far the sharpest uptick since lockdown measures were implemented.

       The growth for the top three loan segments – mortgage, automotive and working capital loans – remained at a slow pace of 4.6% growth y-o-y to RM1.26 trillion versus 4.5% growth y-o-y to RM1.25 trillion the prior month.

       Meanwhile, MIDF Research said business loans showed promise as it jumped by 2.4% y-o-y to RM819.5bil (versus 1.8% higher y-o-y to RM811.5bil at August 2021).

       It exhibited 0.99% m-o-m growth (August 2021: 0.41% drop m-o-m), by far the sharpest growth since lockdown measures began.

       The brunt of growth came from loans for working capital purposes.

       As with retail loans, MIDF Research expects business loans to continue to flourish following the recent loosening of pandemic restrictions.

       “We are pleased to observe that loan disbursement as of January to September 2021 continued to come in strong at 22.9% y-o-y growth, despite choppy rates throughout the period.

       “Meanwhile, the more promising repayment rate this year (24.6% higher y-o-y), while bolstered by moratoriums, may be an indicator of the resilient repayment ability of borrowers,” it said.

       MIDF Research also noted that September’s gross impaired loans ratio has fallen to 1.57%.

       “We are unsure as to whether this development will continue; some scarring effect from the prolonged lockdown may be reflected in the fourth quarter, though we doubt that it will breach 2%.

       “Banks remain cautious and are taking precautions; the total system provision-to-system loan ratio is at a high 1.89%. In contrast, pre-pandemic values range from 1.2% to to 1.4%,” added MIDF Research.

       The research unit also expects current account savings account (CASA) growth rates to continue falling in the fourth quarter, as pent-up demand and improved consumer sentiment will likely ramp up consumers spending.