PETALING JAYA: The banking system’s loan growth gained further momentum in April of this year underpinned by the growth in household and business loans amid a slight weakness in asset quality.

       Loans growth gained traction in April and rose to 5% year-on-year (y-o-y) compared with March’s figure of 4.6% y-o-y growth owing to the household and business segments which rose 4.9% and 5.7% respectively. In household, the loan expansion came from mortgage and auto loans. As for the business segment, it was lifted by working capital financing.

       Leading indicators were mixed, where loan applications nudged down 0.5% y-o-y (March: plus 5.1%); this was stalled by both HH and business loans. However, loans approval rose to 19.1% (March: plus 13.4%) as business lending became more accommodative but household turned tighter (plus 6% vs March: plus 12.7%)

       Hong Leong Investment Bank (HLIB) Research, which is maintaining its “overweight” call on the banking sector, said the overall system loans growth was within its full financial year (FY22) expectation of 4.5% to 5.%.

       Deposit growth expanded to 6.2% y-o-y (March: plus 5.2%) due to stronger current account savings account (CASA) and foreign currency deposits. Overall, April’s loan-to-deposit ratio remained flat month-on-month (m-o-m) at 87% (versus February’s 18’s peak of 89%). HLIB Research said it is of the view that the current deposit taking landscape continues to be competitive.

       There was some weakness in asset quality as gross impaired loans (GIL) ratio nudged up two basis points m-o-m to 1.57%, dragged by the household and business segments. HLIB Research said the increase in GIL ratio is not worrisome since banks have made heavy pre-emptive provisions in FY20 to FY21, noting that credit risk has been adequately priced in by the market.

       The research house said: “We believe the sector still has some legs to run as valuations continue to be undemanding and we are only at the cusp of an overnight policy rate (OPR) hike upcycle with economic recovery, which benefits banks.

       “Besides, they have the headroom to perform management provision overlay writebacks or act as buffers in event of deteriorating asset quality. However, there are pockets of concerns like acute CASA substitution to fixed deposits (capping net interest margin expansion) and inflationary cost pressures.

       “For large-sized banks, we like Malayan Banking Bhd for its strong dividend yield. For mid-sized banks, RHB Bank Bhd is favoured for its high common equity tier-one ratio and attractive price-tag.

       “As for small-sized banks, Bank Islam Malaysia Bhd and Affin Bank Bhd are preferred and like the former for its positive structural growth drivers and better asset quality while the latter has the potential for special dividends and strong financial metrics.”

       Meanwhile, Kenanga Research said the loan growth for April was in line with its 5% to 5.5% industry growth target for now.

       With the OPR hike coming in effect in May, the research house believes this could play down into slower household applications, although businesses are expected to continue demanding for loans to capitalise on the ongoing economic recovery.