PETALING JAYA: The banking sector is expected to see a 5.2% increase in loan growth in 2022, fuelled by a 4.6% and 5.6% year-on-year (y-o-y) expansion in corporate and consumer loans, respectively, according to TA Securities Research.
Since the gradual reopening of the economy, the research unit noted that loan growth has been on the mend.
According to the central bank, total loans and advances grew by 3.3% y-o-y (3.1% higher year-to-date) in October 2021, rising from 2.9% y-o-y (2.5% higher year-to-date) in September and 2.5% y-o-y (1.6% higher year-to-date) in August 2021.
“We anticipate that business activity would continue to recover as businesses improve on the back of our forecast that real gross domestic product (GDP) would grow at a stronger pace of 5% to 6% in 2022 (versus an estimate of 3.9% in 2021),” said TA Securities Research.
The research unit opined that the favourable outlook is premised on continued recovery in domestic activities, mainly on consumer spending and investment, and a resilient external sector.
Banks Malaysian Maybank RHB, Public Cimb
“We envisage that almost all economic sectors will expand on the supply side, led by the services and manufacturing sectors,” it said.
TA Securities Research noted that historically, consumer loans have been primarily backed by home mortgages, which account for around 36% of total loans.
In the first nine months of 2021, property sales grew by 53% y-o-y, as demand remained resilient despite the nationwide lockdown in the middle of the year.
“We believe the 2021 sales target is well on track, with all developers maintaining their 2021 sales targets.
“Coming from a high base, we continue to expect a decent pace of growth of around 7% in 2022, on the assumption that the expiration of the HOC (home ownership campaign) on Dec 31, 2021 would not be expanded,” it said.
Other drivers supporting better prospects in 2022 for the property market include improved sentiments on the back of an economic recovery, accommodative interest-rate environment, and the ongoing friendly measures to support home ownership.
TA Securities Research also forecast improved hire-purchase loans, on the back of robust demand in the automotive industry in 2022 due to the sales tax exemption and accommodative interest rate.
Incentives for electric vehicle (EV) ownership announced in Budget 2022, along with a deluge of new models of EVs entering the market next year, are also expected to boost the sector.
The research unit has forecast total industry volume in the automotive industry for 2022 to increase to 600,000 units, up from 500,000 in 2021, implying a 20% y-o-y rise.
Incentives for electric vehicle (EV) ownership announced in Budget 2022, along with a deluge of new models of EVs entering the market next year, are also expected to boost the sector. (File pic: EV batter being installed in a car. - Reuters)
However, competition could keep a lid on net interest income, which is projected by TA Securities Research to rise by a marginal 0.8% y-o-y in 2021 due to softer net interest margin despite the better loan growth prospects.
“We believe that the central bank has room to increase the overnight policy rate in the second half of 2022. While banks should gain from this increase, we anticipate the possibility for competitive pressures to intensify over the year,” it said.
TA Securities Research also pointed out that when domestic development prospects improve, banks may resume competing for loans and deposits.
The low interest-rate environment is also expected to stimulate investment activity and credit demand.
TA Securities Research has pencilled in a more modest profit increase of 1.7% in 2022 due to the high base in 2021, where it projected the banking sector’s net profit to climb by 38.3% y-o-y.
The slower profit growth is predicated by two factors namely modest topline growth and the impact of Cukai Makmur (prosperity tax), which the research unit estimated will cost banks an additional RM3bil in taxation.
TA Securities Research maintained its “overweight” recommendation on the banking sector as it believes that the banking system remains resilient, supported by healthy liquidity and capital buffers to absorb potential losses and support lending activities.
The proactive monitoring by the central bank, continued repayment and debt rehabilitation assistance for targeted borrowers via the Credit Counselling and Debt Management Agency, and a conducive interest rate environment should help keep systemic asset quality in check.