KUALA LUMPUR, June 2 -- As household income is affected by the COVID-19 pandemic, loan growth has taken a toll, as the moratorium kicks in.
MIDF, in a research note today, said that as of April this year, the banking sector loan growth remained at 4.0 per cent year-on-year (yoy) with lower retail and loan applications.
However, as businesses are now in the phase of recovery, business loan growth has grown at a faster pace of 3.5 per cent year-on-year (yoy) to RM792.2 billion, driven by higher expansion of working capital loans of 4.9 per cent yoy to RM405.0 billion.
“Possibly, this could be due to businesses preparing for the uncertainty surrounding the pandemic and the movement control order (MCO),” it said.
Meanwhile, retail loans growth has continued to moderate as it grew at a slower pace of 4.4 per cent yoy to RM906.0 billion compared with 4.8 per cent yoy as at last month.
“On a sequential month basis, it showed a decline from RM906.7 billion. One of the main drivers were the faster decline in loans for the purchase of passenger cars as this fell 1.3 per cent yoy to RM157.1 billion from a contraction of 1.2 per cent yoy as at March this year,” it said.
On loan applications and approvals, the research house said that both segments recorded a contraction as applications slump by 41.4 per cent yoy as major segments of retail loans contracted significantly.
Applications for loans for the purchase of passenger cars, residential properties, personal loans and credit card slumped significantly while cumulatively, the four-month year-to-date loan applications contracted by 11.4 per cent yoy.
“Meanwhile, loan approvals saw a bigger contraction of 48.4 per cent yoy compared with a decline of 22.5 per cent yoy posted the previous month which is in tandem with the contraction of loan applications,” it said.
Maybank Investment, on the other hand, said that as deflation picks up pace in line with the Consumer Price Index (CPI) decline in April, with a contraction of 2.9 per cent, this has led to a jump in real return on deposits to 5.34 per cent in April 2020 from 2.65 per cent in March.
“This has accorded Bank Negara Malaysia (BNM) room to cut interest rates, which it did in May and by a heftier 50 basis points,” it said.
AmInvest, meanwhile, said that banks’ interest income will be impacted by the consecutive overnight policy rate cuts, leading to lower net interest margins.
“As of now, we do not see any signs of further cuts in overnight policy rate (OPR). The moratorium granted on loan repayments for six months will result in a one-off day modification loss adjustment to banks interest income in the second quarter this year in line with MFRS 9.
“However, we believe that the impact will be manageable with the loss adjustment eventually reversing out as the loans progress towards the remaining tenor after the moratorium. Banks are still in discussions with the regulators and auditors to come up with a resolution for the modification loss,” it said.
Despite the current contraction, research houses are optimistic of upbeat future performance after the pandemic economic impact has subsided, and has remained neutral on the stock performance.
As at 10.45am, Bursa Malaysia’s Financial Services Index rose 42.97 points to 12,466.94.