Overweight call on banking on strong loan growth

KUALA LUMPUR: Analysts have maintained an overweight call on the banking sector on the back of strong loan growth, loan application level and deposit growth.

CIMB Research said growth in loan indicators improved by 27% year-on-year (y-o-y). Growth of loan applications and approvals improved to 27% y-o-y in May from 19.5% and 24% y-o-y in April respectively.

Meanwhile, AmResearch said loan growth in total accelerated to 13.8% y-o-y, buoyed by both the consumer and corporate segments.

Loan growth expanded at a stronger rate of 13.8% y-o-y in May compared with 13.5% in the previous month.

Loans approved also rose at a faster pace of 26.9% y-o-y in May versus 24% y-o-y in April.

Absolute loan application level of RM66bil in May was the second-highest in three years, supported by robust growth in public sector financing, working capital segment and residential mortgage segment.

The rise in residential mortgage loans made up for the shortfall from the auto loan segment. According to AmResearch, this should allay fears about a possible slowdown due to supply disruptions.

Deposits also grew 11.3% y-o-y in May, the strongest since December 2008. The business enterprise segment recorded a 10.5% y-o-y growth while individual deposit grew 11.5% y-o-y.

However, overall gross impaired loans were flattish, registering a 0.8% rise on a month-on-month basis in May. This was the first time in three months that impaired loans are flat compared with the previous two months.

CIMB Research has indicated that the current operating environment for banks would continue to be favourable.