For Malaysian families and small business owners, the steady flow of credit from banks remains a vital lifeline, even as the broader economic picture grows more uncertain. In October 2022, loan growth held constant at 6.5% compared to the same period last year, supported by increases in both the household and commercial divisions of 6.3% and 5.5%, respectively. This consistency means that across the country, home buyers, car owners, and entrepreneurs are still able to access the financing they need to move forward with their plans.
Across all household segment sub-segments, there was an increase in borrowing activity. Home mortgages and hire purchase remain the main drivers of this growth, though they have moderated a bit from their recent highs.
For businesses, working capital financing provided the key support for the commercial segment’s expansion. The overall system loan growth met the 6% to 6.5% full-year 2022 forecasts set by analysts. Notably, unsecured loans scored a remarkable 5% month-over-month gain.
Credit card loans, which make up 1.9% of all system loans according to MIDF Research, increased significantly year over year by 13.6%. Both local and foreign cardholders’ combined purchases in Malaysia showed significant consecutive month growth, with 3% and 7% month-over-month increases, respectively.
However, the research firm noted that the percentage of all local card purchases continued to lean more heavily toward foreign cardholders.
Banking Sector Faces Headwinds Despite Safe Reputation
Despite waning sectoral tailwinds, banking stocks are still regarded as “safe” investments in the face of potential economic difficulties. According to analysts, “The banking industry can also aim to boost non-interest revenues. As banking remains a safe sector in the face of a potential economic slump.” However, the sector is dealing with increasing deposit competition, declining rates on savings and current accounts, sticky staffing and technology costs, more macroeconomic overlays, and new challenges to asset quality in the coming year.
Hong Leong Investment Bank (HLIB) Research has lowered its rating to “neutral” on the Malaysian banking industry. “We become less enthusiastic on the banking industry, despite valuations remaining undemanding,” the firm stated, citing fewer rate increases expected next year, fierce deposit competition, and a softer macroeconomic outlook.
Additionally, the research firm claimed that the sector is becoming less attractive to investors.
Asset Quality Remains Resilient
According to HLIB Research, asset quality was resilient in October 2022, with the gross impaired loans ratio holding steady month over month at 1.82%. This stability provides some reassurance for borrowers and lenders alike, suggesting that despite the fading tailwinds, the banking system’s foundation remains solid for now.
Looking ahead, analysts will be watching closely to see if loan growth can maintain its current pace through the end of 2022 and into the new year, particularly as the sector navigates deposit competition, softer economic conditions, and potential shifts in consumer and business borrowing behavior.
