KUALA LUMPUR: The banking sector is expected to see strong growth in net interest income, underpinned by robust loan growth and hikes in the overnight policy rate (OPR).
The sector is also expected to see a downtrend in loan loss provisioning, according to CGS-CIMB Research.
The research house pointed out that the robust loan statistics in July this year reaffirmed its positive earnings outlook for banks for the second half of 2022, as well as for 2023.
CGS-CIMB Research noted that the banking industry’s loan growth continued to improve from 5.6% at end-June to 5.9% at end-July.
“As at end-July, household and business loans had expanded at healthy rates of 6.1%
and 5.8%, respectively.
“The industry’s loans expanded by 3% in the first seven months of this year, translating into an annualised growth rate of 5.2% for 2022. This was within our projected loan growth of 5% to 6% for the industry this year.” it said.
CGS-CIMB Research pointed out that the momentum in leading loan indicators was strong, with close to 80% growth in July for both loan applications and approvals.
“The key driver was the triple-digit growth in applications and approvals of auto loans.
Meanwhile, applications and approvals of property loans also expanded at double-digit rates in July,” it said.
The research house added that the robust loan applications and approvals in July would help to support the industry’s loan growth, which it expects to be around 6% in the next one to two months.
There was also a marginal increase in the banking industry’s gross impaired loan ratio, which rose by six basis points month-on-month (m-o-m) to 1.85% at end-July.
Meanwhile, loan loss coverage fell from 100% at end-June to 96.5% at end-July.
The banking industry’s total provisions fell by RM40.7mil m-o-m in July to RM35.2bil.
“This could indicate some chunky write-backs by certain banks and could be an early indicator of loan loss provisioning in the third quarter remaining low,” said CGS-CIMB Research.
Meanwhile, TA Research said it foresees earnings in 2022 to be supported by stronger loan growth projections, a rising interest environment and healthier asset quality outlook as borrowers under a targeted repayment assistance resume repayment, with ample capital and liquidity reserves in the banking system.
It is expecting a 5.8% increase in loan growth for the system this year, which is within the central bank’s 5.4% to 6.4% forecast.
“We believe the expansion will be fuelled by a 5.9% and 5.8% growth in corporate and consumer loans, respectively,” said the research unit.
However, TA Research noted that uncertainties due to the ongoing geopolitical tensions, rising inflationary pressures and an environment of rising interest rates could pose challenges for the banking sector.
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