Easing restrictions likely to support credit growth

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KUALA LUMPUR: Easing restrictions could support credit growth after a stable month (m / m) July as a result of isolation measures and a new round of credit moratorium.

However, banks are wary of the possibility of asset quality deterioration amid a prolonged economic recovery.

Stricter isolation measures that took effect in June have made it difficult to apply, receive payments and disbursements. Consequently, the total volume of loans in July turned out to be 0.1% higher compared to the same period last year, both for loans to individuals and businesses.

In addition, with the general moratorium on subscriptions effective July 7, monthly loan repayments have dropped 2.2% (-4.7% for households and -1.5% for businesses) as individuals cling to more cash liquidity, Kenanga Research reports.

The research house also noted that the number of loan applications for July decreased by 28% compared to the same period last year and by 15% MoM for the above reasons.

Households and businesses continue to face serious difficulties in seeking loans, as the difficult business climate may not have stimulated their future activities.

This led to a decrease in approved loans by -16% YoY and -11% MoM.

On an annualized basis, system loans in July increased by 3.1%, mainly due to loans to the population (+ 4.2%) for fuel for private cars and the purchase of real estate.

Business loans, meanwhile, were up 1.7% as there were mixed constraints across sectors, hampering operations and expansion.

“The data for July reflects the overwhelming damage that travel controls and restrictions can cause to the economy as a whole, and could have dire consequences if overstretched.

“As for August, we believe there will be some relief after some relaxation of such measures, but it may take much more to show a meaningful improvement.

“In unison, all banks anticipate some hurdles in asset quality and therefore warn of the need for further impairment,” Kenanga Research said in a report yesterday.

In July, the total volume of depreciation increased by 20% YoY, primarily on loans to individuals (+ 37%) and businesses (+ 11%).

Household defaults are likely caused by those who have lost their sources of income, while businesses have suffered from a volatile operating environment that has hampered sales, according to the brokerage company.

In terms of gross impaired loans (GIL), the month was recorded at 1.67% (+5 basis points or basis points m / m), while the share of households was 1.18% (+7 basis points), and the share of enterprises – 2.36% (+1 basis points). “However, banks consistently keep their reserves high, providing a coverage ratio of 111.5% (June 2021: 111.9%, July 2020: 95.5%) in the event of further deterioration.

“However, given the rise in vaccinations, we hope that the number of new daily cases of Covid-19 will gradually decrease to more economical levels by the fourth quarter, and this will give us the necessary impetus to increase confidence again,” it said.

For now, Kenanga is holding on to its forecast of 3% -4% loan growth from the system to 2021, with sectors reopening continuously after all states move to Phase II of the National Recovery Plan.

Meanwhile, TA Securities was slightly more positive, leaving its 2021 credit growth forecast unchanged at 5.2%.

While it was noted that the softer endorsement and bid in June and July may have signaled a normalization in demand, expectations that activity should pick up by the fourth quarter will help support its outlook.



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