Loan growth is accelerating | The star

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PETALING JAYA: Banking system loan growth accelerated further in April this year, supported by household and corporate loan growth amid slightly weak asset quality.

Loan growth accelerated in April and reached 5% YoY (YOY) from March’s figure of 4.6% YoY, driven by the household and business segments growing respectively 4.9% and 5.7%. In households, the expansion in loans came from mortgages and auto loans. As for the business segment, it was driven by working capital financing.

Leading indicators were mixed, where loan applications fell 0.5% yoy (March: plus 5.1%); this was blocked by both household and business lending. However, loan approvals increased to 19.1% (Mar: plus 13.4%) as business lending became more accommodative, but households tightened (plus 6% from March: plus 12 .7%).

Hong Leong Investment Bank (HLIB) Research, which maintains its “overweight” call on the banking sector, said the system’s overall loan growth was within its full-year (FY22) expectation of 4.5%. at 5,%.

Deposit growth reached 6.2% year-on-year (March: up 5.2%) due to stronger current account savings accounts (CASA) and foreign currency deposits. Overall, April’s loan-to-deposit ratio was flat month-over-month (mom) at 87% (vs. February 18’s peak of 89%). HLIB Research said it believes the current deposit-taking landscape continues to be competitive.

There was some weakness in asset quality, with the gross impaired loan (GIL) ratio rising two basis points to 1.57%, led by the household and corporate segments. HLIB Research said the rise in the GIL ratio is not of concern since banks made heavy precautionary provisions in FY20-21, noting that credit risk has been properly priced in by the market.

The research house said: “We believe the sector still has its work cut out for it as valuations continue to be undemanding and we are only on the cusp of a key overnight rate hike. (OPR) with the economic recovery, which benefits the banks.

“In addition, they have the leeway to effect reversals of recovery of management provisions or act as buffers in the event of deterioration in asset quality. However, there are pockets of concern such as CASA’s acute substitution for term deposits (capping net interest margin expansion) and inflationary cost pressures.

“For big banks, we like Malayan Banking Bhd for its high dividend yield. For mid-sized banks, RHB Bank Bhd is favored for its high Common Equity Tier 1 ratio and attractive price.

“With regard to smaller banks, Bank Islam Malaysia Bhd and Affin Bank Bhd are preferred and as 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 loan growth for April was in line with its industry growth target of 5% to 5.5% for now.

With the OPR hike coming into effect in May, the research house believes this could play a role in slowing household demands, although businesses are expected to continue to demand loans to capitalize on the recovery current economy.

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