The banking system loans resumed a moderate growth trend of +0.44% on a month-on-month basis against a +0.3% mom growth in February 2018. Loan indicators such as applications, approvals and disbursements appear to be gradually picking up mom in March, on the back of improved consumer and business sentiment. Household and business loans grew by +0.34% and +0.58% mom respectively. We maintain our 2018 loan growth target of 5.0%. Reiterate sector OVERWEIGHT with Maybank (MAY MK, RM10.60, BUY) and Hong Leong Bank (HLBK MK, RM18.8, BUY) as our top sector picks.

March 2018 Loan Growth Momentum Resumed After the Festive Period

Post a shorter working period in February, the banking system’s March loans saw an improved growth of 0.44% mom, while sustaining a modest yoy growth of 4.4%. This is in contrast to our 2018 full year target of 5.0%, which in our view, will be driven by gradually improving business and consumer sentiment. Meanwhile, we believe that due to an impending General Election, many are adopting a wait-and-see attitude now. Nonetheless, we note the following industry loan growth trend in the business and household segments:

i) Business loan growth has not picked up strongly yet, up 0.58% mom and +1.9% yoy, though a number of banks are focusing on beefing up their SME/business segments. We believe that as capacity utilisation rates (as measured by MIER) has risen from 77.5% in 2016 to 82.6% in 2017, there could be a need to invest further in capacity expansion. Notably, sectors such as manufacturing, construction, retail & trade and real-estate are seeing stronger loan growth than the other economic sectors; and

ii) For the household sector, March18 loan growth was at +0.34% mom and +5.6% yoy, driven by segmental growth in residential property, and a pick up in personal financing and credit cards.

In March 2018, loan indicators such as applications, approvals and disbursements were reversing from a mom downtrend in February, which was a shorter working month.

Source: Affin Hwang Research - 2 May 2018