KUALA LUMPUR (July 2): CIMB Investment Bank Bhd expects the country’s loans growth in the banking sector to improve until August 2018, which will be boosted by consumer spending and auto purchase as a result of the zero-rated goods and services tax (GST).

“We expect loan growth to improve in the next few months until August 2018 as the cut in the GST from 6% to 0% in June 2018 could have spurred consumer spending and auto sales,” CIMB's analyst Winson Ng said in a sector note today.

Since assuming power after the 14th general election on May 9, the Ministry of Finance had on May 16 announced that the rate of the highly unpopular GST will zero rate for a period of three months from June to August, and subsequently introduce the Sales & Services Tax (SST) in early September.

Beginning September 2018, CIMB said the loans growth -- one of the country’s key economic indicator -- is expected to contract, as the government rolled-out the sales and services tax, which may result result in weaker demand for business loans.

“We think that loan growth could trend downwards from September 2018 to end-2018 due to weaker credit demand for business loans on the back of uncertainties arising from possible policy changes following the change in government in May 2018,” Ng added.

Still, Ng said CIMB has not changed its forecast of the country’s loans growth this year, which is expected to grow between 4% and 5%.

For now, CIMB is keeping its "Neutral" call on Malaysian banks on concerns over a weaker loan growth despite a possible recovery in June 2018 to August 2018, lower margins and expected weaker net profit growth the second half of 2018.

Last week, Bank Negara Malaysia released the country’s banking statistics, which showed that the banking industry’s loans growth inched up to 4.9% year-on-year at end-May 2018, from 4.8% y-o-y at end-April 2018.

Describing the May figure as “largely stable”, Ng said the loans growth has received a steep boost from small and medium enterprises loans, business loans and household loans.

However, CIMB said that it was disappointed by the loans applications, which fell by 9.2% in May from 20% in April, while loan approvals grew by 0.6% in May as opposed to 21.6% previously.

“There was weakness in the growth of the indicators for major loan segments, i.e. residential mortgages, auto loans and working capital loans,” Ng added, as consumers deferred their purchases in view of the changing tax regime.