Can Malaysia's banking sector achieve its 10% growth target in 2013?

Check out two possible factors that can drive the sector's growth.

According to a report, Malaysia's banking sector is set to grow 8-10%. So we asked banking analysts, is this target achievable? And what will drive this growth?

Adil Ahmad, former CEO of Kuwait International Bank
The Malaysian banking sector should show good growth in 2013. Malaysia’s GDP grew by a relatively strong 5% in 2012 and leading economists predict that it will grow at a similar pace in 2013. Its 2012 growth was driven by strong local spending, both consumer and government. Both of these are expected to be equally strong in 2013. In addition, the continuing economic recovery in the US will provide impetus to Malaysian exports.

The growth in Malaysia’s economy will drive strong growth in its banking sector. Two additional factors which will further aid the banking sector’s growth are (1) the strong position Malaysian banks enjoy in the booming Indonesian economy, especially CIMB and Maybank and (2) the expected strong growth in Islamic finance, especially in the Sukuk segment where Malaysian banks are dominant players.

The new initiatives undertaken by Malaysian regulators, for example the regulations permitting investment in Sukuks by retail investors, will also help the growth of the Malaysian banking sector.

Standard & Poor's: Ivan Tan, Director of Financial Institutions Ratings
We expect loans growth to be in the high single digit range, slightly lower than the 11% annualized growth (based on 3Q 2011 data) recorded in 2011. We believe Bank Negara Malaysia’s responsible lending guidelines, implemented in early 2012, would lead to some further moderation in consumer loans growth as part of the regulator’s efforts to rein in the country’s high household debt to GDP of over 70%. Consumer loans account for about 55% of total banking system loans.

DBS Vickers: Lim Sue Lin, Analyst
Most banks have rebalanced their portfolios towards higher yielding loans and are now focused on growing low cost deposits (CASA). However, competition for loans and deposits will continue to drive down NIMs in the near term, but we expect it to be less severe

We expect earnings growth to be capped by NIM compression and moderate loan growth, and forecast 12% earnings growth for 2013. Preprovision profits will be flat at best. Meanwhile, higher-thanexpected non-interest income (from capital markets) and continued lower provisions could spring positive surprises to earnings .