KUALA LUMPUR (Nov 1): Malaysian banks’ loans and deposits growth may ease when they report their third-quarter results, RHB Investment Bank (RHB IB) flagged but nevertheless, tells investors to stay positive.
Net interest income growth could be supported by earlier efforts to re-price down deposit rates, while further improvement in asset quality provides room for overlay reversals, the research house noted. Both are supportive of bottomline, it said.
Loan disbursements could accelerate, especially given that loan approvals have rallied ahead, the house said.
Data from Bank Negara Malaysia, which was out on Wednesday (Oct 30), showed that expansion in loans decelerated to 5.6% year-on-year in September, from 6.4% in June. The pace of increase in deposit eased to 3.3%, from 4.9% by end-June.
While deposits grew at a slower clip, competition typically intensifies in the final three months of the year, which raises banks’ cost of funds and pressures their net interest margins.
Lending indicators showed mixed signals, with loan applications down 5% and approvals off 4%, while disbursement fell 8%. On a year-to-date basis, applications grew by 4% and approvals 3%, while disbursements contracted 2%.
Households, which form the majority of borrowings in the banking system, should still underpin loans growth in the fourth quarter, with a healthy increase in loan applications at 4% so far this year, RHB IB noted.
There were upsides in asset quality across the sector, the house said, citing improvements in gross impaired loan — debts deemed unrecoverable as a percentage of total loans — to 1.54%, and increase in loan loss coverage to 90.8% beyond the pre-pandemic level.
“Assuming economic prospects remain robust; we see scope for overlay reversals to help support sector earnings growth,” RHB IB added.