Bank growth with strong economic recovery

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PETALING JAYA: Banking sector credit growth is expected to hover between 4% and 5.2% this year, supported by an improvement in economic activity through broader vaccination measures.

The sector is poised for growth due to the strong economic recovery expected in the second half of the year despite the current full lockdown.

To this end, most of the analysts are still bullish on the sector and have kept their “overweight” position.

Credit expansion remained flat overall in April, growing 3.9% yoy, compared to 3.9% yoy in March. Consumer credit led the increase and rose more strongly at 6.6% year-on-year (+ 0.5% compared to the previous month or previous month).

The segment, which accounted for around 60% of total consumer credit, continued to be driven by residential mortgages, which grew 7.4% yoy (+ 0.6% yoy). Withdrawals for personal use followed.

TA Securities said, “We believe that strong growth in the consumer segment, particularly in home loan and hire purchase applications, will coincide with the alleged Homeownership Exemption (HOC) and Sales and Service Tax (SST) in late May and June 2021, respectively.

“Since both the HOC and the SST were recently extended to December 2021, we expect demand to normalize in the coming months.

“We are therefore sticking to our assumption that consumer credit will grow by 6.2% in 2021, but are reducing corporate credit from 5.8% to 3.9%. We are thus lowering our forecast for total loan growth for 2021 from 6% to 5.2%. “

However, the research house said it continued to reiterate its “overweight” stance on the banking sector.

The prerequisite for this is, among other things, the gradual improvement in the dynamics of domestic economic activities due to possible “herd immunity” through vaccinations, which would lead to stronger credit growth forecasts year-on-year in 2021.

TA said the concerted stimulus measures by governments around the world to protect businesses and individuals from the economic disruption caused by the pandemic and the possible reopening of borders due to the global roll-out of the Covid-19 vaccination program were other reasons for its “obese” stance on the sector .

Despite the uncertainties surrounding the credit outlook, the research house believes financial institutions are stepping up their efforts to identify customers and extend repayment as the central bank proactively monitors developments and the liquidity in the system by easing capital and liquidity buffers to support it Lending ensures aid to those in need and a favorable interest rate environment should help keep systemic asset quality risk at bay.

Kenanga Research, which maintains its “overweight” stance on the sector, said: “Between banks in our coverage, we expect credit growth of 4% to 5% in 2021, assuming that there is a higher increase in the second half of the year.

“We believe that with vaccination efforts in place, looser and more sustained movement controls could allow economic activity to normalize and an undisturbed recovery towards recovery.”



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