Maintain neutral: Surpassing expectations, Bank Negara Malaysia reports that total loans and advances climbed 5.6% year-on-year y-o-y (+0.6% month-on-month [m-o-m]) in 2018 versus 4.1% in 2017. The increase in demand for credit during the year was mostly underpinned by the consumer segment. Demand for business loans accelerated towards the end of the year.
Consumer loans rose 5.9% y-o-y, a slight improvement from 5.5% in 2017. We believe part of the increase was spurred by the tax holiday between June and August 2018. By segment, the rise in consumer loans was largely supported by residential mortgages, which rose at a stable pace of 7.6% y-o-y (+0.6% m-o-m). This was followed by personal loans (+7.8% y-o-y, +0.6% m-o-m) and drawdowns for the purchase of securities 7.1% y-o-y (-0.4% m-o-m).
Loans for the purchase of passenger cars remained lacklustre, slipping 0.1% y-o-y — after registering four consecutive months of yearly increases. Advances for credit cards rose 2.5% m-o-m in December. Compared to a year ago, advances for credit cards broadened by 2.1% y-o-y. Business loans improved, rising sequentially at an even more encouraging pace of 0.8% m-o-m.
From a year ago, total business loans broadened by 5.3% y-o-y. We estimate that SME loans also widened at a healthier pace of 0.3% m-o-m and 7.9% y-o-y as confidence was shored up after the removal of the goods and services tax. We estimate that other business loans, such as the larger corporate enterprises climbed 4.2% y-o-y (+1% m-o-m).
By subsegment, yearly demand for working capital improved by 5.4% y-o-y (+0.5% m-o-m). By sector, yearly demand for loans in the primary agriculture segment contracted for the 10th straight month. Total advances for the segment slipped 3.2% y-o-y (-0.5% m-o-m). Demand for loans for the mining and quarrying segment reversed gains in November, falling 0.6% y-o-y (+0.9% m-o-m).
Loans drawn down in the transport, storage and communications broadened by 0.6% y-o-y (+0.6% m-o-m). Meanwhile, the education and health segment remained weak (-4.4% y-o-y, +8.3% m-o-m), dampening stronger yearly increases in wholesale and retail trade (+7.4% y-o-y), electricity, gas and water supply (+12.1% y-o-y), construction (+13.8% y-o-y) and real estate (+1.5% y-o-y).
Continuing its positive momentum — finance, insurance and business activities and manufacturing loans registered positive y-o-y growth of 8.1% y-o-y (+2% m-o-m) and 8.5% y-o-y (+0.2% m-o-m). Meanwhile, as expected, capital market activities eased during the year. Net funds raised by the private sector via issue of new shares and new issue of debt securities (excluding redemptions) softened to RM103 billion in 2018 from RM122 billion in 2017.
Y-o-y loan applications ended the year in positive territory, rising 4.8% y-o-y (-4.3% m-o-m). Application for consumer and business loans accelerated by 5% y-o-y (-0.6% m-o-m) and 4.6% y-o-y (-8.9% m-o-m). Sequentially, application for loans remained in contraction mode. By segment, application to buy residential mortgages improved 6% y-o-y (-11.1% m-o-m) and for personal uses, -4.6% y-o-y (-7.1% m-o-m). Application for credit cards climbed also declined by 2.6% y-o-y (+1.4% m-o-m) while application for HP loans decreased by 20.9% y-o-y (+6.5% m-o-m).
Total loans approved declined in 2018. The 10.1% y-o-y reduction in loan approvals was mostly driven by the business segment (-20.4% y-o-y). On the other hand, yearly approvals for the consumer segment improved (+3.0% y-o-y). The overall approval rate stood at 51.6%, supported by business and consumer approval rates of 61.0% and 44.8% respectively.
By major subsegments, approval for the purchase of residential properties and non-residential properties stood at 45.2% and 45.7% respectively versus 46.1% and 45.1% respectively in 2017 while the approval for HP loans stood at 58.2% versus 52.4% a year ago.
Yearly repayments strengthened, rising 20.9% y-o-y and 14.9% m-o-m in 2018. The ratio of net impaired loan to net total loans for the system stood at 0.91%. During the year, the gross impaired loan (GIL) ratios for residential properties and non-residential properties deteriorated by a slight 10 basis points (bps) y-o-y to 1.1% and 1.3%, while credit cards and loans for personal uses improved 20bps y-o-y to 0.9% and 2% respectively. Meanwhile, the GIL ratio for HP loans stood unchanged at 0.8% y-o-y.
Total deposits (excluding Repo) advanced by 6.8% y-o-y (+0.5% m-o-m). Albeit at a softer pace, current account savings account (Casa) balances in commercial banks maintained its yearly upward momentum, increasing 1% y-o-y. The Casa ratio stood at 26.4%. The liquidity coverage ratio rose y-o-y to 143% (2017: 135%), while the loan to fund ratio stood little changed at 82.7% (2017: 83.9%).
The average lending rate has improved to 5.42% in 2018, an increase of 20bps versus 5.22% in 2017. Nevertheless, this was largely attributed to the overnight policy rate increase in January 2018. Elsewhere, the banking system’s capital buffers remained ample with common equity tier 1 and total capital ratio of 13.1% and 17.4%.
We raise our 2019 loan growth projections to 5% from 4.6% previously — underpinned by business and consumer loan growth of 5.2% and 4.8% respectively. Despite the continued acceleration in business loans, we gather that business activities remain in cautious mode, which could result in softer-than-expected demand for loans and capital market activities going into 2019. — TA Securities, Feb 4