loan growth

 
 

Malaysia likely to benefit from regional, multilateral pact, despite trade war: UOB Malaysia

PETALING JAYA: Malaysia is likely to benefit from regional and multilateral trade initiatives, such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, which will help boost trade and investment across Asean.

In a statement today, UOB Malaysia managing director and country head of personal financial services Ronnie Lim (pix) said the stronger connectivity and closer trade links with the regional partners will help enhance the country’s resilience against rising global trade protectionism.

Over the medium term, Lim said the bank expects the economy to continue on its growth trajectory given its strong fundamentals and ongoing policy reforms to stimulate growth through labour productivity, capital spending and technology.

Despite its expectations for moderate global growth in 2019, the bank expects Malaysia’s gross domestic product (GDP) to expand by 4.9% this year, albeit at a slower rate than last year.

Additionally, he said the domestic growth is likely to be supported by strong demand from private consumption and steady inflow of foreign investments and exports.

Lim said the new administration’s efforts to build a more transparent government, steady growth, low unemployment and a surplus current account will also help support the domestic economy in the year ahead.

Nevertheless, Lim said that even as interest rate increases are expected to slow in the year ahead, the overall environment of quantitative tightening, low private sector loan growth and trade conflicts are contributing to expectations of slower global growth.

“This is causing estimates of lower investment returns in 2019,” he said.

Against such a backdrop, he said investors with a medium to low tolerance for risk and with a long- term investment horizon should stay defensive and prudent throughout 2019.

These investors should consider anchoring their investment portfolios in low volatility investments that can generate sustainable income while mitigating wider market risks, he added.

“In developed markets, we are neutral on US and Japanese equities, and slightly negative on European equities. With the sell-down in late 2018, the absolute valuations of US equities look reasonable, but relative valuations to other regional equities remain elevated.

“We are also positive on emerging market equities. We favour Asia (ex-Japan) in light of the region’s healthy economic growth and compelling valuations. Within the region, China equities offer better return potential as valuations have fallen following the recent market sell-off,” Lim added.


Malaysia likely to benefit from multilateral pact

PETALING JAYA: Malaysia is likely to benefit from regional and multilateral trade initiatives, such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, which will help boost trade and investment across Asean.

In a statement today, UOB Malaysia managing director and country head of personal financial services Ronnie Lim (pix) said the stronger connectivity and closer trade links with the regional partners will help enhance the country’s resilience against rising global trade protectionism.

Over the medium term, Lim said the bank expects the economy to continue on its growth trajectory given its strong fundamentals and ongoing policy reforms to stimulate growth through labour productivity, capital spending and technology.

Despite its expectations for moderate global growth in 2019, the bank expects Malaysia’s gross domestic product (GDP) to expand by 4.9% this year, albeit at a slower rate than last year.

Additionally, he said the domestic growth is likely to be supported by strong demand from private consumption and steady inflow of foreign investments and exports.

Lim said the new administration’s efforts to build a more transparent government, steady growth, low unemployment and a surplus current account will also help support the domestic economy in the year ahead.

Nevertheless, Lim said that even as interest rate increases are expected to slow in the year ahead, the overall environment of quantitative tightening, low private sector loan growth and trade conflicts are contributing to expectations of slower global growth.

“This is causing estimates of lower investment returns in 2019,” he said.

Against such a backdrop, he said investors with a medium to low tolerance for risk and with a long- term investment horizon should stay defensive and prudent throughout 2019.

These investors should consider anchoring their investment portfolios in low volatility investments that can generate sustainable income while mitigating wider market risks, he added.

“In developed markets, we are neutral on US and Japanese equities, and slightly negative on European equities. With the sell-down in late 2018, the absolute valuations of US equities look reasonable, but relative valuations to other regional equities remain elevated.

“We are also positive on emerging market equities. We favour Asia (ex-Japan) in light of the region’s healthy economic growth and compelling valuations. Within the region, China equities offer better return potential as valuations have fallen following the recent market sell-off,” Lim added.


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Limited share price upside seen for property sector

PETALING JAYA: Rising interest rates, Malaysia’s slowing gross domestic product growth and unfavourable government policies will limit share price upside for Malaysian property development companies, said CGS-CIMB.

Although it expects the property companies in its coverage universe to post positive earnings growth this year, CGS-CIMB said share price upside will be limited and the sector is unlikely to re-rate to peak levels last seen in 2014.

“The property sector has garnered more interest lately due to its attractive valuations, but we believe the sector is cheap for a reason and this could be a false dawn. We believe developers could miss their new property sales targets for 2018, and are likely to set lower new sales targets for 2019. We think it’s a signal that the 2019 property market is likely to see lower new property sales and weaker buying sentiment,” it said in its report today.

According to its analysis, the medium 40% and bottom 40% (B40) households face difficulty in buying properties as the average house price is above both groups’ affordability range and despite government incentives and policies to address this issue, the oversupply in the property market has continued to rise since 2012.

“Likewise, property stocks have fallen from their peak valuations in 2014, some to the trough levels in 2008, making them attractively priced at the moment, in our opinion,” it added.

CGS-CIMB does not see much room for housing loan growth given the existing low interest rate environment, limited buyer’s affordability and possible interest rate hike.

In addition, restrictive government policies are still in place and it does not see any incentive for consumers to purchase property given the weak rental market and subdued property market.

Given the limited domestic affordability, higher real property gains tax and restrictive policies on foreigners, the property oversupply issue is expected to persist. Note that in 1H2018, properties priced below RM1 million accounted for 93% of total unsold residential property inventory.

“We expect the housing market to remain challenging in the near term, unless there is a meaningful surge in household income, decline in house prices or more positive measures are introduced,” it said.

Although lower property prices are possible, developers would be at the losing end if they were to lower prices at the expense of profit margins to spur new property sales demand or remove rebates/freebies to protect margins, which could result in weaker new sales.

“Even if new house prices are cut by 20%, we think the prices would still be unaffordable for the B40 households. Instead of focusing on increasing affordable housing supply and ownership, we believe a better way to approach the housing glut is to increase Malaysians’ household income in a meaningful way,” it said.

CGS-CIMB maintained its “neutral” call on the sector with an estimated dividend yield of 3% on average in 2019.

Sime Darby Property Bhd remains its top pick as the company has shown continuous improvement in its property development division and new property sales since its demerger in November 2017.

“We believe the group’s healthy balance sheet and massive land bank are advantages in addressing the change in future product demand,” it said.


Outlook for local banking sector remains challenging: Kenanga Research

PETALING JAYA: The banking sector’s outlook is challenging due to external concerns while clarity and direction on the domestic front remain murky, according to Kenanga Research, which maintained a neutral stance for the sector as no fundamental change is expected, and the sector lacks concrete catalysts.

“We view the industry with caution as uncertainties and headwinds still prevail. The industry remains unexciting, dragged by moderate loan growth and soft capital markets. Prevailing negative sentiment both globally and domestically will continue to drive volatility and uncertainty in the industry. Caution will still prevail due to the soft economy outlook globally,“ the research house said in a note today.

It said banks with healthy asset quality (hence low impairment allowances) will still be the favour due to their defensive quality.

“As such, selective asset growth will still be the focus for the banks. Despite stable economic outlook in the domestic environment coupled with low unemployment, we opine that cautiousness and selective assets growth will still prevail in the industry,“ Kenanga Research explained.

It said loan growth moving forward will still be moderate as uncertainties prevail with fee-based income expected to be soft as a result of the volatile capital market. However, with the stable outlook, this will support a moderate and stable credit charge for the industry.

“We expect impairment allowances (credit costs) to be stable and consistent (as it had been generally in 2018) which will lend support to the banks’ bottom line. We do not discount another potential up-cycle of impairment allowances, especially those highly exposed to the energy sector (CIMB, Maybank and RHB Bank) as energy prices have been under pressure due to the perceived economic slowdown both domestically and globally.”

Kenanga Research expects mild compression for net interest margin (NIM) as most of the banks’ loan-to-deposit ratio and loan-to-fund ratio are over 90% and 80%, respectively, as compression will be mitigated by soft credit demand. The deferment of NSFR (net stable funding ratio) into 2020 plus the absence of high credit demand will support the outlook for a stable to mild compression in NIM.

“However, looking at the slowing momentum in household demand, we do not discount the likelihood of competitive lending rates in the short term as banks strive to achieve their loan growth target. This competition will ultimately lead to further downside pressure on NIM.”

The research house has revised downwards the 2018/2019 earnings estimates by 80bps/30bps to +6.7%/+5.6% respectively.

“For 2019, earnings are slower at +5.6% year-on-year (yoy) as we based from these assumptions of credit charge at 0.33%; and slight compression on NIM by 3bps and a higher pace from fee-based income (+6.6% yoy due to a lower base).”

It also toned its outlook on loan growth for FY18 at +4.7% (from +4.9% previously) on account of revision of prevailing headwinds.

Kenanga Research reiterated its outperform call for BIMB Holdings Bhd, as its financing portfolio (70% of total financing) is skewed towards household (75% first-time buyers for residential property) with focus on growing its personal financing will minimise NIM compression.

Another preferred pick is Malaysia Building Society Bhd (MBSB), which is expected to achieve 3-4% growth driven by corporate loans/financing as another RM950 million is expected to be disbursed in Q4 18.


BNM likely to maintain OPR at 3.25 per cent

KUALA LUMPUR: Kenanga Investment Bank Bhd believes that Bank Negara Malaysia will retain the overnight policy rate (OPR) at 3.25 per cent this year as part of the strategies to ensure capital market stability, ample liquidity and to remain supportive of banking industry growth. In a research note, Kenanga said year-to-date (YTD) loan growth has […]


Ringgit’s performance mixed in 2018 mainly due to external factors

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BNM: Non-resident portfolio outflows continue in November

PETALING JAYA: The domestic financial markets continued to record non-resident portfolio outflows in November, due mainly to uncertainties surrounding external developments, according to Bank Negara Malaysia (BNM).

“The ringgit depreciated by 0.1% amid non-resident portfolio outflows. The outflows were driven mainly by risk-off investor sentiments due to concerns over escalating global trade tensions and expectations over future US interest rate hikes,” the central bank said in its Monthly Highlights November 2018.

The FBM KLCI declined 1.7% n November due to non-resident outflows of RM00 million s investors remained cautious amid continued volatility in global equity markets and the decline in crude oil prices.

The five-year Malaysian Government Securities (MGS) yield remained stable amid non-resident outflows of RM5.4 billion, increasing slightly by 7.3 basis points.

“The impact of outflows remained contained due to active buying by domestic institutional investors,” BNM noted.

Meanwhile, the central bank highlighted that the banking system asset quality remains sound with unchanged net impaired loans ratio f 0.9%.

“Banks continued to maintain sufficient buffers against potential credit losses with total provisions to total loans ratio sustained at 1.5%.”

BNM said net financing growth increased slightly to 7.3% in November on the back of higher growth in outstanding banking system loans of 6.2%.

“Business financing remained strong, with a higher outstanding loan growth of 6.3% (October: 5.6%), driven mainly by the wholesale and retail trade, restaurants and hotels; construction; and manufacturing sectors. Growth in outstanding corporate bonds remained healthy at 10.5% (October: 10.2%).”

However, growth in household loans moderated slightly to 5.7% in November versus 5.9% in October.


Maybank IB maintains ‘buy’ call on CIMB

KUALA LUMPUR, Dec 12 — Maybank IB Research has maintained its “buy” call on CIMB Group Holdings Bhd, while projecting the bank to record a faster earnings growth of 11 per cent into financial year (FY) 2019. The better projection was…


Wall Street ends choppy day higher as tech helps, Brexit weighs

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