Loans growth is poised to slow down as lending indicators are showing signs of moderation in credit expansion, said analysts.
ECM Libra Investment Research expects household loans growth to slow down as property sales cool down amid credit tightening and policy measures to curb excessive speculative activities.
In a report issued yesterday, ECM Libra said the loans growth momentum could be curbed by slow deposit growth which has continued to lag credit expansion at 6.5% year-to-date or 7% on an annualised basis.
Despite slower growth rates, leading loans indicators remain at comfortable levels considering that absolute levels of loan applications and approvals stayed close to peak levels. Its calendarised loans growth forecasts is 8.4% for this year and 10.9% for last year, according to AmResearch Sdn Bhd's report yesterday.
AmResearch added that net interest margins might see less pressure with the average lending rate stabilising.
OSK Research Sdn Bhd said in a report yesterday that this year's loans growth would remain robust as the rise in interest rates from record lows was unlikely to dampen pent-up credit demand spurred by a recovering economy.
AmResearch said the slowdown in the residential loans segment was positive, considering that household debts had risen significantly over the past one year.
“The future (loans) growth will likely be driven partly by execution of projects under the government's Economic Transformation Programme (ETP),” it added.
While the ETP implementation will be predominantly financed by the private sector and result in higher business loans growth, ECM Libra said it was cautious on the prospect of project implementation delay at this juncture.
The banking industry saw an overall loans growth of 13.2% year-on-year (y-o-y) in November 2010 due to business and household sector loans expansion as compared with the 12.4% y-o-y loans growth seen in October 2010.
“This growth has surpassed the previous high of 12.9% y-o-y growth almost two years earlier in December 2008. The peak before this would be the 14.9% growth in April 1998. Thus, industry loans growth is now at the highest level since the Asian financial crisis,” said AmResearch.
However, slower growth was seen in leading indicators. Loans applications, approvals and disbursements all expanded slower on a y-o-y basis for November 2010 at 13.2%, 4.7% and 0.7% against October's 20.8%, 21.4% and 11.8% respectively.
Despite the slower loans growth, AmResearch said the absolute amount of loans applied of RM56bil was still close to peak levels compared with the monthly average of RM43.4bil for 2009.
It added that the muted increase in loans approved in November 2010 was not a major concern, as it came mainly from a 74.5% y-o-y drop in other purpose segment (which included lumpy loans approved to the public sector).
OSK Research said that loans applications dipped as applications for the business and household sectors trended lower. It added that weaker demand for construction and purchases of fixed assets other than land and buildings led to slower business applications.
“Loans applications for the household sector declined, mainly due to slowing growth in the purchase of residential property,” said OSK Research.
Loans approval growth slowed due to weaker growth in the business sector with loans approvals for the purchase of fixed assets other than land and buildings being the major drag while loans approvals for the household sector moderated, it added.
Meanwhile, ECM Libra said competition in the mortgage market had resulted in widening negative spread over the base lending rate (BLR).
“This is likely the cause for the fall in average lending rate (ALR) to 4.99% despite average BLR remaining unchanged at 6.27%. Interest margin is under pressure as the ALR-3 month fixed deposit spread has fallen to 2.25%, the lowest level in 12 years,” it added.
However, momentum in merger and acquisition activities is expected to be sustained, which would underpin non-interest income growth. CIMB Group Holdings Bhd would be the main beneficiary, said ECM Libra.