PETALING JAYA: Amid downside risks, banking sector loan growth this year is expected to improve, driven by the economic recovery and rising domestic demand.
Banking analysts are optimistic that lending should be driven by business and consumer lending.
Kenanga Research said it was maintaining its loan growth forecast for this year at 4% to 5% from last year’s 4.5% growth.
“Loan growth will continue to be supported by a sustained economic recovery and an expected improvement in domestic demand. Additionally, a prolonged period of low interest rates should also keep lending attractive, before Bank Negara likely begins its rate hike cycle in the second half of the year.
“However, downside risks have increased due to the upsurge in local Omicron Covid-19 cases and the likely impact of the Russian-Ukrainian conflict on a nascent global economic recovery.
“We expect the central bank to hold its benchmark rate at 1.75% at its meeting this week, amid mild inflationary pressures and continued downside risks to economic growth. Likewise, we are maintaining our view that the bank could begin its rate hike cycle in the second half of the year,” the research house added.
Loan growth for the month of January 2022 hit a nearly three-year high of 4.7% from 4.5% in December 2021.
It was driven by a sustained expansion of loans to residential real estate (January: 6.9%; December: 6.8%), the purchase of transport vehicles (January: 1.7%; December: 1, 1%) and higher growth in loans for the purchase of securities (January: 5.2%; December: 3.9%), which compensated for a more pronounced decline in construction loans (January: decrease of 4.3%; December: decrease of 0.3%).
By sector, loan growth was mainly driven by higher credit growth for the household sector (January: 4.7%; December: 4.3%), which outpaced a slowdown in loans for financials, insurance and commercial activities (January: 4.7%; December: 5.9%). %) and the wholesale, retail, hotel and catering sector (January: 10.5%; December: 11.2%).
Monthly loan growth (mom) remained stable at 0.5% in January (December: 0.5%), amid a slightly lower weighted average commercial bank lending rate (Jan: 3.44%; December: 3.45%).
Deposit growth moderated to 5.8% YoY (Dec: 6.3%) as it contracted YoY (Jan: 0.7% decline; December: 1%).
The moderation was due to weaker growth in demand deposits (January: 6.3%; December: 9%), a near two-year low, and savings deposits (January: 12.3%; December: 14.6%), which offset an expansion in fixed deposits (January: 1.9%; December: 1.1%).
Meanwhile, the central bank said the country’s banks’ loss-absorbing capacity remained strong, with excess capital buffers of RM131.9 billion in January 2022. It said banks remained well capitalized to withstand potential stress and could continue to support credit flows to the economy.
“Capital ratios increased slightly in January 2022 due to the recognition of year-end earnings,” he noted. The bank said banks’ resilience continued to be supported by good asset quality, where overall gross and net impaired loan ratios remained broadly stable at 1.4% and 0.9%, respectively.