Cautious corporates could drag Malaysian bank lending to 6% in 2018

Businesses are holding back borrowing as they await policy clarity.

Malaysian banks are expected to continue booking slower loan growth figures by end-2018 as companies choose to lie in wait for clearer policy guidelines especially with reagards to the budget before stepping up borrowing activities, according to Moody’s Investors Service. 

From a more positive 7-8% projected forecast, banks are expected to record slightly lower levels at 5.6%, Simon Chen, vice president and senior analyst for financial institutions said in a statement.

“Previously, we were more optimistic that there might be a faster recovery  but now we are a bit more realistic,” he said. “There is a need for policy clarity for businesses in Malaysia. Until that happens, businesses will take a more cautious approach.”

Also read: Sluggish approval rates dampen Malaysian loan growth 

This coincides with earlier reports that the new national leadership under Mahathir Mohamad signals a slight dampening effect on the sector.

Mahathir’s rise to power heralded a massive shift in the country’s politics as he defeated the long-ruling Barisan Nasional coaliation led by Prime Minister Najib Razak in the country’s 14th general elections last May.

“Post-GE14 macro policy uncertainty could have a slight dampening effect on the banking sector’s growth. As such, we believe the sector is unlikely to chart the same degree of outperformance prior to GE14,” UOB Kay Hian said in a previous statement.

External headwinds from escalating US-China trade dispute is also likely to weigh in on the growth prospects of banks although Hong Kong and Singapore are likely to be the most vulnerable and exposed to the tit-for-tat tariff war.

"The entire electronic supply chain tends to be more exposed. A lot of Asia Pacific economies are very closely linked to the supply chain and Malaysia is one of them," added vice president and senior analyst for sovereign risk group at Moody’s Investors Service Anushka Shah.