Banking statistics released by Bank Negara showed that loan growth was stable despite slowing loan growth indicators, an indication of more downside in the months to come.
For June 2012, loan growth was stable at 12.6% on a year on year (yoy) basis, versus 12.5% in May 2012. The growth was slightly higher for both consumer and business loans at 11.8% and 13.6%, respectively, in June 2012.
The growth in applications moderated from 15.1% in May 2012 to 10.5% in June 2012, while approvals contracted by 2.1% yoy, versus an increase of 18.2% in May 2012.
CIMB Research said that the culprit was the contraction in residential mortgages while the pace for auto loans improved strongly to about 27% yoy in June 2012.
For the month of June, the three lending indicators of loan application, loan approval and loan disbursement activities declined by 0.5%, 11.5% and 1.4% on a month on month basis to RM76.2bil from RM76.6bil previously.
CIMB Research banking analyst Winson Ng said that although loan growth was sustained at 12.6%, downside risks still persist to his projected forecast of 10% to 11% for 2012.
“The slowdown will come from the consumer loan segment, especially when applications for residential mortgages in June 2012 dipped by 12% on a year-on-year basis,” said Ng.
On the other hand, Alliance Research banking analyst Cheah King Yoong is maintaining his forecast of 11% domestic loan growth in 2012, for now. In fact, he foresees an increasing upside to his 11% domestic loan growth forecast for 2012 in view of the strong pick-up of loans in June.
He remains optimistic about the continued vibrant domestic lending activities going forward. He also expects the sluggishness and volatility seen in the first few months following the introduction of responsible lending guidelines to normalise going forward, with most banks completed their policy fine tuning to comply with the guidelines.
Although property loans remains the key driver, where loans to purchase residential and non-residential properties constitute 46% of the annualised 12.7% loan growth for June, Cheah observes that other purpose loans and working capital have been gathering pace, contributing 28.8% and 22.3% of the loan growth drivers, respectively.
“We also acknowledge that business loans have recorded a commendable annualised growth of 15.9%, ahead of household loans’ annualised growth rate of 10.1%.
“This has reaffirmed our expectation that despite having a slow start in early 2012, overall domestic lending activities is picking up, with stronger growth of business loans stemming from the roll out of Entry Point Projects under the government Economic Transformation Plan, which filled up the vacuum left by the moderation in property loans,” said Cheah.
Meanwhile, although the deposit rates were largely unchanged, banks’ average lending rate contracted by 8 basis points on a monh on month basis to 4.8% in Jun 2012. Ng said that this reflected keen industry competition and signals continuous pressure on margins. The impaired loan ratios dropped by 20 basis points month on month to a gross 2.2% and by 10 basis points month on month to 1.5% net in June 2012.
Loan loss coverage rose from 95.3% in May 2012 to 98.9% in June 2012.