KUALA LUMPUR – MIDF Amanah Investment Bank Bhd (MIDF) foresees a 5% year-on-year loan growth this year for the banking sector driven by accelerated loan demand.
Last year, loan growth averaged 4.01%.
The investment bank said besides consumer loans, businesses are expected to drive loan growth to fund the expected increase in business activities this year.
“Our optimism is premised on economic recovery, made more certain with the availability of vaccine in the second half of this year (H2 2021), expecting credit cost to start normalising while income will stage a rebound especially as our economics team opine of a potential rate hike in the final quarter of the year,” it said in a research note today.
MIDF maintains a “positive” view on the banking sector as it expects earnings to improve.
Nevertheless, it has also identified short-term pressure that banks would have to overcome, especially potential stress on asset quality.
“However, we opine that banks in general will be able to weather it, particularly in the case of banks with large loan loss reserves or those that have been resilient in the current challenging environment,” it said.
In a separate note, CGS-CIMB Securities Sdn Bhd projected loan growth in the sector to be between 4% and 5% in 2021 supported by a gross domestic product (GDP) growth projection of 7.5%.
“However, we see downside risk to our 2021 loan growth projection as the movement control order 2.0 (MCO 2.0) could crimp 2021 GDP growth and business activities,” it said.
The stockbroking firm reiterates its “overweight” call for the banking sector as it expects a recovery in banks’ net profit growth to 19% in 2021 although the growth rate could be lower due to MCO 2.0 and the spike in Covid-19 cases.
Meanwhile, Kenanga Investment Bank sees further weakness in the market as investors scrutinise updates on movement controls and Covid-19 cases, which could cause better buying opportunities to emerge.
“At present, we are not overly concerned as our recent industry checks have indicated that the previously allocated target assistance exposure for certain banks are still sufficient in the current economic climate with household loan applications still healthy,” it said.
It said the B40 segment only made up a low-to-mid teens proportion of certain banks’ overall retail loans.
Maybank Investment Bank in a separate note maintains its 2021 loan growth forecast of 3.8% premised on faster economic expansion and decent demand for mortgage and auto financing.
AmInvestment Bank said it expects the Overnight Policy Rate (OPR) to remain unchanged at 1.75% with some downside risk if MCO 2.0 is extended beyond February 4 with stricter restrictions.
“We believe that all eyes will be on the weeks before the next Monetary Policy Committee (MPC) meeting on March 4 for any signs of pickups in economic growth,” it added. – Bernama, February 2, 2021
