Loan Growth Under The New Government Show Mixed Results
With news of foreign funds outflows making headlines in the last two months, it comes as a surprise that it was not all bad news on the economy.
According to Malaysia’s central bank (BNM), Malaysia’s financial markets continued to face ‘non-resident outflows amid renewed trade war concerns’ in its Monetary & Financial Development report released on 31 July.
BNM’s report further noted that outstanding loan growth remained stable for both businesses in May and June (June: 3.0%; May: 3.2%) and the same trend was seen in household loan growth for the same months.
In the meantime, household loan applications and approvals for the purchase of passenger cars increased significantly in June to 15.3% and 21.9%, the BNM report added, highlighting the higher demand for financing during the current tax holiday period.
Analysts have also weighed in on the market sentiment with CIMB Research expecting the banking sector to register slower loan growth for the coming months.
“We expect the industry’s loan growth to pick up to slightly above 5% year-on-year (y-o-y) in July and August, mainly supported by the improvement in the auto loan momentum.
“However, we think loan growth could start to ease from September, as the growth in car sales could fizzle out upon the introduction of the sales and service tax, and weaker demand for business loans, given the uncertainties arising from the potential policy changes by the government,” local media reported on a statement released by CIMB Research.
Meanwhile, Affin Hwang Capital Research has a different read on the market conditions, forecasting improving confidence leading to loan growth for the second half of this year.
“We reiterate our view that post-GE14, business and consumer confidence will gradually improve on the back of more certainty with respect to the new government’s policies, which remain pro-business and pro-socio economic growth,” Affin Hwang Capital Research tells TheStar.
On the other hand, UOB Kay Hian Research says it is too early to tell which way the loan growth sector will perform after the general elections.
“Post-GE14, macro policy uncertainty could have a slight dampening effect on overall sector growth and hence result in downside risk to earnings,” the statement by UOB Kay Hian Research also reaffirmed that it will keep its 2018 loan growth target of 5%-5.5%.