PETALING JAYA: Banking industry lending is up 4.7% year-to-date, below AmInvestment Bank Research’s (AmInvest) expectation of 5% to 6% growth this year, helped by an expansion in gross domestic product (GDP) of 5.6%.
Credit growth had increased to 5% year-on-year in May 2022.
“Higher household credit growth of 5% yoy was offset by slightly slower non-household credit growth of 4.9% yoy,” it said, adding that lending for working capital loans slowed in May.
AmInvest said total banking sector provisions increased modestly by 0.8%m/m (Mom) or RM261m in May.
“With loans under the financial assistance trending down, banks have yet to write back their management overlays significantly as they continue to be cautious about provisions in the near term,” the research house said.
While there is still room for chargebacks on overlays, some of the previously set aside regulatory provisioning buffers could be used to cover certain loans that are impaired after the end of the broad repayment assistance program, if necessary without further need to sharply increase their provisions.
AmInvest said that accelerating Federal Reserve rate hikes towards 3.5% by the end of this year will result in a more stable Malaysian 10-year government bond yield, which stood at 4.2% in May 2022.
This bodes well for banks’ future noninterest income streams without the negative impact of mark-to-market repricing on banks’ securities holdings, it said.
She expects asset quality for the banking sector to remain stable, albeit with a continued rise in non-performing loans, as borrowers continue to exit loan repayment programs, leading to a reduction in the percentages of loans with repayment assistance.