PETALING JAYA: The banking sector is expected to see a modest recovery in loan growth this year, due to the automatic moratorium on loans and lower provisioning amid downside risks.
The automatic loan moratorium, which banks began offering on July 7, will boost loan growth while profits could also recover this year, supported by a higher net interest margin (NIM), according to analysts.
The NIM is a measure of the difference between interest income generated by banks and the amount of interest paid on deposits.
Loan approval, which is an important leading indicator of loan growth, increased 22% year-on-year in the first half of the year, which bodes well for total loan growth in 2021.
Analysts are forecasting loan growth of 3% to 4% this year against 3.4% in 2020.
Impacted by the tightening of containment in June, the growth of bank loans moderated, going from 3.9% year-on-year at the end of May 2021 to 3.4% year-on-year at the end of June.
The slowdown is mainly due to the household loans segment, which grew 5.2% y / y at the end of June against growth of 6.1% y / y at the end of May.
At the same time, the dynamics of non-real estate loans (mainly business loans) slowed down, going from 0.9% yoy at the end of May to 0.8% yoy at the end of June.
CGS-CIMB research analyst Winson Ng said the industry’s total lending increased 1.6% in the first half of the year, resulting in an annualized rate of 3.2%.
“This was in line with our loan growth forecast of 2.5% to 3.5% for 2021, although we take into account a slowdown in loan growth in the second half (compared to the first half).
“In addition, the automatic moratorium on loans, which banks began offering on July 7, should support the growth of bank loans, as the moratorium loans would not be repaid within three to six months,” he said. he declares.
Ng predicts that the gross bad loan ratio (GIL) will increase to 2% by the end of the year. The industry GIL ratio edged up from 1.59% at the end of May to 1.62% at the end of June. This was expected, given the credit risks triggered by the Covid-19 pandemic.
The total provision for banks only increased by 978.1 million RM in the second quarter of this year compared to 2.04 billion RM in the first quarter (for a quarterly or quarterly comparison) and 1.24 billion in the first quarter of this year. second quarter (for a year-over-year comparison).
The research house, which reiterates an “overweight” position in the banking sector, deduced that the cycle of decline in banks’ provisioning for bad debt (LLP) continued in the second quarter, with declines likely year-on-year and quarter on quarter in the second quarter. -quart LLP.
This, along with the expected year-on-year expansion of banks’ NIMs, should have driven second-quarter bank profits, he noted, adding that his picks for the industry are Public Bank, Hong Leong Bank. and Malayan Banking (Maybank).
UOB Kay Hian (UOBKH), who maintains an “overweight” position in the sector, said, among other things, that she still expects growth in system lending for the full year 2021 to mark. a modest recovery to 4% against 3.4% in 2020.
“Household loans are expected to support the recovery, driven by the Home Buyers’ Plan and the Sales and Services Tax (SST) exemption for auto loans, both of which have been extended until end of 2021.
“However, against a backdrop of weak business confidence overall, growth in business loans is likely to partially offset stronger growth in loans to households.
“Overall, we expect household and business loan growth of 6.8% and 0.7% year-on-year, respectively, in 2021 compared to 5% and 1% in 2020,” UOBKH said. .
Meanwhile, Kenanga Research said it is keeping its 2021 system loan growth expectations at 3% -4%, as immediate struggles could be offset closer to year-end as immunization efforts allow a reopening of the economy on a larger scale and a relaxation of movements. controls.