Malaysian bank lending posts dismal growth at 4.9% in May

Working capital loans remained weak.

Lending at Malaysian banks inched up marginally from 4.8% in April to 4.9% in May as most loan segments posted dismal performances, according to UOB Kay Hian.

Also read: Malaysian banks waive fees for interbank fund transfers

In addition to weak performance from working capital loans, auto loans also contracted 1.4% whilst non-residential property eked out a measly 2% gain.

On the other hand, lending for residential property and other construction related loans drove the slight monthly growth after rising 8.8% and 9.4% respectively.

Also read: Malaysian bank earnings may slow 9.7% in 2018 amidst new leadership

Overall deposit growth similarly moderated from 5.6% in April to 4.9% in May 18 on a year-on-year basis. The month-on-month performance also displayed weak showing after edging down 0.1%.

“We opine that the mom contraction could be partially due to greater withdrawal of domestic savings from the banking system allocated to investments in the capital market as the sharp decline due to the sell-off by foreign investors may have represented a buying opportunity for domestic investors,” said UOB analyst Keith Wee Teck Keong.

This led to a slight deterioration in LDR to 89.1% in May 18 from 88.8% in Apr 18. Keong notes that the decline may prompt banks to compete more aggressively for fixed deposit and hence offset some of the positive repricing gap from the recent interest rate hike.

Credit rating agency Moody's is more bullish about the prospects of Malaysian banks as year-end loan growth may clock in by as much as 7% in 2018 on the back of improving economic conditions. 

Here’s more from UOB Kay Hian: 

Gross impaired loans (GIL) were relatively flat yoy whilst inching up by 2bp mom to 1.60%. Non-residential property loans were the only key segment that saw a large deterioration in asset quality with its GIL rising 16.9% yoy.

Smooth transition expected with new governor. We do not expect a drastic change in overall policies by BNM with the appointment of Datuk Nor Shamsiah Mohd Yunus as the new BNM Governor, given the fact that she has been in BNM since 1987 and had played a key role in the preparation and the implementation of the Financial Sector Masterplan for the development of the Malaysian financial system from 2001 to 2010.