Bank Negara Malaysia’s October numbers looked fine on the surface. Industry loan growth edged up to 6.5% year-on-year at the end of the month, from 6.4% at the end of September. The Malaysian Reserve, reporting on the central bank’s monthly highlights on 5 December 2022, found the underlying signals less comfortable.
Business lending did the lifting. Growth in that segment reached 5.5% year-on-year at end-October, against 5.2% a month earlier. Working capital financing held its pace, at 8.6% year-on-year in October versus 8.5% in September. Household loans went the other way, easing from 6.6% to 6.3%. The paper suggested inflation and the hikes in the Overnight Policy Rate may be to blame.
Within consumer credit, securities, auto, housing, card and personal financing all grew more slowly. Non-residential property lending picked up slightly.
Applications are slipping
The paper pointed to the leading indicators. Loan applications and approvals have shrunk month-on-month for two to three months running. MIDF Research said three-month system loan applications fell 6.3% month-on-month, driven by weaker hire purchase, residential mortgage and working capital demand. Working capital applications were one of the few categories not to shrink sequentially, with a thin 1.9% month-on-month gain after a 20% drop in August 2022.
Approvals dropped a steeper 12% month-on-month as banks tightened. The approval rate fell to 53.5%, down from a 61% peak in August 2022, with business loans seeing a notable cut. MIDF noted the rate was still relatively high.
What analysts expect
“We expect the industry’s loan growth to soften in November-December 2022F, from the level of 6.5% YoY at end-October 2022, given the negative impact from the OPR hikes,” CGS-CIMB Research said in a sector report. It added that auto loan growth of 8.5% year-on-year at end-October looked unsustainable, since it expects auto sales to contract quarter-on-quarter in the fourth quarter.
Both houses stayed positive on banks. CGS-CIMB kept its Overweight call, citing loan growth and wider net interest margins during the rate-hike cycle, and named RHB Bank, Hong Leong Bank and Public Bank as picks. MIDF called banking a “safe” sector in a possible downturn, but warned that tailwinds were thinning because of deposit competition, falling CASA rates, sticky technology and personnel costs, and pressure on asset quality next year. Its top picks were Public Bank and RHB Bank.
