Don't be fooled by Malaysia's strong business loan growth

The 10.2% growth could merely be a sign of cash flow constraints from operational bottlenecks.

According to UOB KayHian, business loans fuelled growth while household loans continued to soften. Total loans stood at RM1,412.7b in Aug 15, up 10.2% yoy (Jul 15: +9.7%).

Here's more from UOB KayHian:

A robust 15.9% yoy growth in working capital loans (Jul 15: +12.6% yoy) was the key driver in helping to underpin the recovery in system loan growth to an annualised 8.2% yoy in 8M15 vs our full-year 7.2% yoy estimate.

However, the growth momentum in business loans was partially diluted by the continued slowdown in household loans, with growth moderating from 10.0% yoy in Dec 14 to 8.3% yoy in Aug 15.

Strong business loan growth may not be a reflection of actual optimism. The segments of business loans which exhibited robust growth were wholesale retail trade and real estate, both of which are facing industry headwinds.

As such, we opine that the strength of growth could be a sign of cash flow constraints emanating from a combination of operational bottlenecks from GST refunds and a challenging growth environment rather than a reflection of genuine robust business volume demand growth. This renders the strong loan growth unsustainable.