In Focus
RETAIL BANKING | Staff Reporter, Malaysia

Looming loan slowdown threatens Malaysian banks' 2019 earnings

Lending is tipped to moderate to 5.1% in 2019 from 5.6% in 2018.

Malaysian bank profits are poised to rise 6.4% in 2019 as credit costs stabilise although an impending slowdown in lending is heaping pressure on the bright earnings outlook, according to Maybank Kim Eng.

Return of equity, which measures how much earnings a business generates with the money that its shareholders have invested, is set to average 10.5% in 2019 compared to an estimated 10.4% in 2018.

Also read: Government shake-up may slow growth in Malaysian banks' 2018 earnings

CIMB, in particular, is set to receive a stronger ROE boost to 11.6% in 2018 from 9.6% in 2017 on the back of a one-off gains of $260.03m (MYR1.07b) arising from three stake sales in CIMB Securities International, CIMB-Principal Asset Management and CIMB-Principal Islamic Asset Management.

The outlook, however, isn’t purely rosy for Malaysian banks as lenders will have to prop up softening loan growth to meet positive earnings targets.

Maybank analyst Desmond Ch’ng believes that this will be a challenge as household and non-household lending are expected to drop with headline figures set to trend downwards to 5.1% in 2019 from 5.6% in 2018. “That we expect moderately slower loan growth in 2019 is largely predicated on current trends in loan applications, whereby loan applications in the key segments appear to have weakened in recent months,” he explained.

Also read: Will the HSR cancellation dampen Malaysian banks' loan growth?

The growth of the sector’s loan portfolio has been weighed down by sluggish approval rates, Maybank Kim Eng noted in an earlier report. In March, loan approvals contracted 7.6% to contribute to a sharp decrease in loan approval growth on a 3M MA basis from 12.6% YoY in February to 5%.

In terms of loan types, working capital loan applications are amongst the segments weighing on non-HH loan growth. Commercial property lending is also unlikely to sustain its near-term rally as banks remain cautious amidst an oversupply of office space, shopping malls and shophouses in select urban areas.

Residential property lending is also set to slow as mortgage loan applications soften. The growth spurt in auto loans that resulted as consumers took advantage of the tax-free period from June 1 to August 31 to purchase cars, is also set to subside in 2019 along with personal lending, said Ch’ng.

[C]orporate lending will thus have to sustain pace to support overall sector loan growth momentum. Guidance from the larger corporate banks such as Maybank, CIMB and RHB points to a still healthy corporate loan pipeline though the main
challenge is in encouraging companies to draw down on their loan facilities,” he added.

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