WHILE the third wave of COVID-19 infections will likely dent the uptrend on Malaysian loan outlook, a boost to working capital loans as businesses are booming once again amid economic recovery prospect will be a boon for the loan market.
This alongside mortgages and car loans have prompted Fitch Solutions Country Risk & Industry Research to forecast a loan growth of 4.5% in 2021 for Malaysia, a modest acceleration from the 3.4% full-year loan growth in 2020.
“We expect loan growth to pick up slightly in 2021, driven mainly by mortgages and car loans,” projected the research house which is independent t of Fitch Ratings in an economic commentary.
“Property transaction volumes are likely to see some support from the Government’s easing of cooling measures while car loans are likely to see some residual boost from promotional campaigns that began in 2H 2020.”
As the third wave of COVID-19 infections will likely dent the uptrend on mortgages and car loans, Fitch Solutions foresees a boost to working capital loans as businesses will require more credit to tide them over the slowdown.
“While asset quality is poised to worsen after the expiry of the loan moratorium in December 2020, this poses little immediate risk to financial stability as the sector remains well-capitalised,” justified the research house.
Overall loan growth came in at 3.9% year-on-year (yoy) in March, picking up slightly from 3.7% yoy in February. The main driver for loans remained residential mortgages which grew by 7.1% yoy in March.
“We maintain our view for mortgages which make up 35.4% of total loans disbursed by the banking sector to remain supported in 2021.
“Indeed, the Government has implemented measures to boost demand for property, including the reintroduction of the home ownership campaign (HOC) which includes the real property gains tax (RPGT) exemption, stamp duty exemption and the removal of the 70% margin of financing limit.”
Meanwhile, working capital loans (22.4% of total outstanding loans) growth has continued to grow, expanding by 2.7% yoy in March.
Fitch Solutions does not expect this loan category to underperform in 2021 due to economic disruptions and likely cash flow issues caused by the third wave of COVID-19 infections which would increase businesses’ demand for bridging loans.
Further support will likely come from car loans (9.1% of total loans) which had seen a resurgence since 2H 2020 on the back of aggressive promotional and marketing campaigns mounted by carmakers.
“We expect these to continue over in 1H 2021 at least, thus providing a strong anchor for overall loan growth,” projected Fitch Solutions.
“Indeed, the March growth rate of 6.6% yoy compared to -1.4% yoy in June 2020 before the campaigns were rolled out, indicates that this trend is continuing to play out.” – May 12, 2021
