CIMB Research Retains Neutral On Banks, Cites Lethargic Loan Growth - CIMB Equities Research is retaining its Neutral outlook for banks due to the lethargic loan growth and potential rise in credit cost upon adoption of MFRS 9 in 2018.
It said on Monday its potential upside risks to its call are a pick-up in loan growth and expansion in margins. On the other hand, the potential downside risks include a rise in banks’ loan loss provisioning upon the adoption of MFRS 9 in 2018.
CIMB Research said loan growth for Malaysia banks eased further from 5.2% on-year at end-September to 4.6% on-year at end-October.
As expected, the industry’s loan growth continued to lose steam by falling for the second consecutive month from 5.2% on-year at end-September to 4.6% on-year at end-October.
“As we do not foresee any strong recovery in loan growth in November-December, we expect the loan momentum for 2017 to be slower than the 5.3% registered for 2016. We are projecting loan growth of 4-5% for both 2017F and 2018F.
To recap, loan growth was dented by the slowdown in business loan growth from 5.8% on-year at end-September to 4.1% on-year at end-Oct 17, arising from wider increase in repayments relative to disbursements.
For household loans, the momentum in residential mortgages, surprisingly, picked up marginally from 8.8% on-year at end-September to 9% on-year at end-October.
The industry’s loan approvals have continued to decline, falling by 2.2% on-year in October due to the drop in the working-capital loan segment, dimming hopes of a strong loan growth recovery in November-December.
However, loan applications rose by a strong 12.8% on-year in October, due to the recovery in the working capital loan segment. This would help to support loan growth in the longer term, i.e. early-2018.
The industry’s gross impaired loan ratio inched down from 1.67% at end-September to 1.65% at end-October, while loan loss coverage increased from 81.2% at end-September to 82.1% at
end-October.
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