Loan Growth Momentum Moderates, But Expected

Banking system loans moderated on month-on-month basis (+0.3% in Feb18) due to the festive season and also a shorter working period. Although loan indicators such as application, approvals and disbursements were down mom in Feb18, we have the comfort that loan replenishment has been picking up in the past few months. Household and business loans grew by +0.3% and +0.2% mom respectively. We maintain our 2018 loan growth target of 5.0%. Maintain sector OVERWEIGHT with Maybank and Hong Leong Bank as our top sector picks

Feb18 Loan Growth Moderated Mom Due to the Festive Period

Traditionally, the banking system’s loans saw slower growth in the month of February due to the shorter working period and of which, also coinciding with the Chinese New Year period, with Feb18 loan growth coming in at +0.3% mom and +4.5% yoy. Key factors to this include:

i) Business loan growth has not picked up strongly, up 0.2% mom and +3.1% yoy, though a number of banks are focusing on beefing up the SME/business segment. We believe that the system loan growth in 2018 will be driven further by business loans due to the need to invest further in capacity expansion arising from increased capacity utilisation rate as measured by MIER (from 77.5% in 2016 to 82.6% in 2017); and

ii) Continued moderation in the household segment’s loan growth (+0.2% mom, +5.6% yoy) probably due to more cautious lending by the banks in light of increased credit risks seen in the automotive and certain residential property segmentss. In Feb18, household loans growth came in at +5.6% yoy while business loan growth was at +3.1% yoy. Key sectors driving loan growth in Feb18 include households, construction, retail & trade, as well as real estate. Although loan indicators such as application, approvals and disbursements were down mom in Feb18, we have the comfort that loan replenishment has been picking up in the past few months.

Source: Affin Hwang Research - 2 Apr 2018