With all three of the banking sector's loan indicators rebounding strongly in May, lending activities in the second half of the year could be poised for a better outlook, analysts said.
May's loans grew at the fastest pace so far this year while monthly loan approvals touched a new all-time high, according to RHB Research Institute.
The total loans outstanding rose 12.5% year-on-year (y-o-y) versus 12.1% in April despite concerns over the flailing global economy, powered by business loans which expanded 13.5%.
Household credit growth was steady at 11.7%.
Kenanga Research said the May statistics suggested that the local banking system remained “flushed with liquidity”.
“We believe this is a sign of optimism for the capital market's development in the second half as the system would be able to support the lending and capital market activities with local funding.
“This excess liquidity will be able to support Economic Transformation Programme-related infrastructure projects and capital market activities initial public offerings (IHH, Astro) and share market trading volume leading to possible better equity valuation multiples and a higher total market capitalisation.
“We believe local banking groups will continue to do well in the current conducive banking system,” it said in a client note. According to Bank Negara data, loan application, loan approval and loan disbursement activities in April registered high double-digit growth rates of 13%, 32% and 26.4% to RM76.6bil, RM42.1bil and RM89.7bil, respectively.
Compared with May last year, the indicators grew by 15.1%, 18.2% and 35.4%, respectively.
Alliance Research said in a report that although the contribution from property loans remained high at 38.5% of total loans outstanding in May, the contributions from working capital and other loans had increased on a year-to-date basis, constituting 25.3% and 5.8% of the total loan components.
“This has reaffirmed our expectation that overall domestic lending activities remain robust, with stronger growth of business loans stemming from the roll out of Entry Point Projects under the ETP which filled up the vacuum left by the moderation in property loans.
“The strong month-on-month (m-o-m) and y-o-y rebound in all three lending indicators reaffirm our optimism of the continued vibrant domestic lending activities going forward and our view that the sluggishness and volatility seen in the first few months following the introduction of responsible lending guidelines will eventually normalise.
“We believe that the upcoming Bank Negara statistics in June will provide a reliable gauge on the lasting impact of the said guidelines on domestic lending activity, with banks completing their policy fine tuning to comply with the guidelines.”
CIMB Research was more bearish, however, saying the positive impact of healthy loan growth would be diluted by a margin squeeze, leading to only a single-digit expansion of net interest income.
“Investors should not jump to the conclusion that credit demand has improved just because of one month of strong growth,” it cautioned.
The bank-backed research house pointed out that loans growth was primarily driven by the faster expansion of loans classified as “others” which included loans to the public sector, a situation it thinks may not be sustainable.
It added that the pace of loan application and approval for residential mortgages was slow at 0.4% and 3.2%, respectively, while the average lending rate for banks contracted 11 basis points m-o-m to 4.77% in May, signalling continued stiff competition in the sector and pressure on margins.