Retail loans to be consistent, business loans to accelerate

KUCHING: The banking sector’s retail loans have been projected to remain consistent for the current year 2021 while business loans are expected to grow at a faster pace than last year.

The research arm of MIDF Amanah Investment Bank Bhd (MIDF Research) recapped that the banking system loans growth as at January 2021 grew at a slightly faster rate of 3.8 per cent year on year (y-o-y), versus 3.4 per cent y-o-y as at December 2020.

Looking ahead, MIDF Research expected loans demand to accelerate for 2021, leading to higher loans growth especially in the second half of 2021 (2H21).

“Besides consumer loans, we expect businesses will also drive loans growth this year, to fund for the expected increase in business activities,” MIDF Research said.

With this, the research arm expected a five per cent y-o-y loans growth for 2021.

“We expect that the retail loans will continue to provide support to overall loans growth especially with the various incentives for purchase of cars and properties.

“For 2021, we expect that business loans will grow at a faster pace than last year and will be the booster to overall loans growth.

“This is premised upon a recovery in the economy.”

Overall, MIDF Research is sanguine of the prospects for the banking sector this year.

The research arm’s optimism is premised on the recovery of the economy, made more certain with the vaccine rollout.

“We also expect the vaccine to be widely available in 2H21.”

MIDF Research expected credit cost to start normalising while income will stage a rebound on faster loans growth and benign net interest margin (NIM) compression.

“Therefore, we expect earnings will improve this year.”

Hence, MIDF Research maintained its ‘positive’ recommendation for the banking sector.

Nevertheless, the research arm recognised that there are shortterm pressure that banks will have overcome.