Slowdown in loans growth seen

Soft economic growth and curbs on consumer lending expected

PETALING JAYA: A slowdown in loans growth is expected this year due to moderating economic expansion, analysts say.

“We believe that a slowdown in loans growth is imminent given the softer economic growth and further curbs on consumer lending,” said CIMB Research in its report yesterday.

The research house added that this was evident from the marginal year-on-year (y-o-y) moderation in loans growth to 13.5% in June from 13.8% a month earlier, as well as the y-o-y softening in loans approval to 14% in June 2011 from between 24% and 27% in the preceding month.

“As such, we retain our projection of 11% to 12% loans growth for 2011 based on the expectation of a 12% to 13% growth for consumer loans (versus 13.4% in 2010) and 10% to 11% expansion for business loans (compared with 11.9% in 2010),” said CIMB Research.

“Also, in light of the healthy economic climate and banks' continuous focus on improving their risk and credit management systems, we expect the industry's gross impaired loan ratio to fall by 30 to 50 basis points to 2.9% and 3.1% in 2011,” it added.

The research house pointed out that loans growth in June was affected by take-ups for auto loans due to the implementation of the amended Hire Purchase Act 1967.

“A few other major loan segments (however) continued to perform strongly residential mortgages sustained growth of about 13% y-o-y in June (while) growth of non-residential mortgages picked up from 20.8% y-o-y in May to 21.9% in June.

“Growth of working capital loans increased from 10% y-o-y in May to 10.7% in June,” CIMB Research said.

Maybank Investment Bank said interest rate hikes are still likely in the coming months.

“With CPI at 3.5% (y-o-y in June) and average deposit rates of 3.07%, negative returns on interest widened to 45 basis points in June.

“With inflation sticky on the downside, we would expect further rate hikes and maintain our view of another 50 basis points in the overnight policy rate to 3.5% over the next six to nine months.”

HwangDBS Vickers noted that asset quality in the banking system remained strong and absolute non performing loans (NPL) declined by 3.7% in June.

“Gross NPL ratios for mortgages, hire purchase and credit cards improved to 2.74%, 1.17% and 1.70%, respectively.

“On the back of the positive loan growth traction, we maintain our 15% target for 2011,” the research house added.

CIMB Research noted that despite an interest rate hike in May, banks' fixed deposit rates remained largely unchanged in June at between 2.95% (one-month tenure) and 3.23% (12-month tenure).

“Stiff competition for low-cost deposits nudged the savings rate up by six basis points month-on-month to 1.14%, which raised banks' cost of funds and crimped their net interest margins.

“Lending yields were still under pressure as average lending rate dipped three basis points month-on-month to 5.07% in June, though the base lending rate was maintained at 6.54%.”