The banking system loans which grew by +4.0% yoy in Apr20, saw a marginal growth of +0.1% mom (Mar20: +0.5% mom), due to slower growth in the household segment. The COVID-19 pandemic and implementation of the movement-control-order (MCO) since 18 Mar, has caused unprecedented challenges to business activities and shifted the supply-demand dynamics. YTD, we note that household loans growth declined by 0.1% while business loans grew by 1.9%. Subsequent to some revisions, we now project a 1% yoy decline in system loans (from 3% yoy decline previously), due to stronger credit demand from the business segment. Meanwhile, we do not discount the possibility of deterioration in asset quality in the domestic banking system, due to potential business closures and rising unemployment. Maintain UNDERWEIGHT on the sector, with ELK-Desa as our preferred pick.

COVID-19 Pandemic Drives Shift in Demand-supply Chain
Banking system loans were affected by the shift in demand for more credit by manufacturing, transportation/storage, energy/utility, wholesale/retail, sectors which needed additional loans to sustain under challenging operating conditions or to cope with an unexpected surge in demand (such as e-commerce business, warehousing, delivery services, food production, packaging materials) as the COVID-19 pandemic hit our country. On the other hand, household loans were relatively flat mom, driven by repayment of credit card receivables and auto-loans. For 2020, we revise our system loan growth forecast to -1% yoy due to stronger credit demand by certain business sectors while notwithstanding potential write-offs of chunky loan exposures to sectors such as O&G, construction and real-estate. Details of Apr20 loan growth trends below:

i) Business loans saw a 4.7% yoy growth, while mom it was up by 0.2%. Nonetheless, disbursement activities were down 21.6% mom after a strong month in March. Loan approvals grew by a marginal 1% mom in Apr20 while loan applications remain robust at +15% mom.

ii) Household loans were up 3.3% yoy, mainly driven by growth in residential mortgages and personal financing in particular. New loan approvals and loan applications declined sharply by 68.8% mom and 66.2% mom, largely due to impact of the MCO.

Source: Affin Hwang Research - 1 Jun 2020