Easing restrictions that could support lending growth

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KUALA LUMPUR: Easing restrictions could support loan growth after a stable July (mom) due to foreclosures and a new round of loan moratoriums.

However, banks are cautious about the possibility of a deterioration in asset quality amid a protracted economic recovery.

The stricter lockdown measures, which took effect in June, had hampered requests, disbursements and reimbursements. As a result, total loans for July increased 0.1% month-on-month for loans to households and businesses.

In addition, with the introduction of a general moratorium on membership as of July 7, loan repayments to mothers fell by 2.2% (-4.7% in households and -1.5 % in businesses) as individuals hang on for more cash, Kenanga Research said.

The research house also pointed out that loan applications for July were down 28% year-on-year (year-on-year) and 15% month-on-month for the reasons mentioned above.

Households and businesses continue to face serious difficulties in seeking loans, as the difficult business climate may have deterred them from continuing to operate.

This resulted in a decrease in loan approvals of -16% year-on-year and -11% month-on-month.

Over one year, the loans of the July system increased by 3.1%, mainly loans to households (+ 4.2%) to fuel the purchases of private vehicles and real estate.

Business loans, meanwhile, rose 1.7% as various sectors experienced mixed restrictions that made operations and expansion difficult.

“The July figures reflect the current damage that controls and movement restrictions could inflict on the overall economy and could have an aggravating impact if prolonged excessively.

“Turning to August, we believe there will be some relief given some relaxation in these measures, but much more could be needed to demonstrate significant improvement.

“In unison, all banks are anticipating headwinds in asset quality and have therefore warned of the need for further write-downs,” Kenanga Research said in a report yesterday.

In July, total depreciations recorded a growth of 20% year-on-year, reinforced by both loans to households (+ 37%) and to businesses (+ 11%).

According to the brokerage, household failures are likely caused by those who have lost sources of income, while businesses suffer due to unsustainable operating environments that have hampered sales.

In terms of gross impaired loan ratio (GIL), the month was 1.67% (+5 basis points or bps mom) with households at 1.18% (+7 bps) and companies at 2.36% (+1 bps). “However, banks continually keep their buffers high, with a loan loss coverage ratio of 111.5% (June 2021: 111.9%, July 2020: 95.5%) if it worsens further.

“That said, with the vaccination rate on the rise, we hope that the number of new daily cases of Covid-19 will gradually reduce to a more favorable level for the economy by the fourth quarter and that would give us the kick. inch needed to boost confidence once again, ”he said.

For now, Kenanga is sticking to its 2021 system loan growth forecast of 3% to 4% with the regular reopening of economic sectors once all states migrate to phase two of the national stimulus plan. .

Meanwhile, TA Securities was slightly more positive, leaving its loan growth assumption for 2021 intact at 5.2%.

While he noted that more flexible approval and enforcement in June and July may have signaled demand to normalize, expectations that business should resume by Q4 will help underpin his forecast.


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