Fitch Solutions Country Risk and Industry Research has forecasted outstanding loans in Malaysia to grow by 4.5 percent in 2021, compared to 3.4 percent in 2020.
“We expect loan growth to pick up slightly in 2021, driven mainly by mortgages and car loans. 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 H2Y20,” the research house stated.
Fitch Solutions has also expected a boost to working capital loans as businesses are likely to face cashflow issues given slower economic activity.
Overall loan growth came in at 3.9% y-o-y in March, picking up slightly from 3.7% y-o-y in February, driven mainly by residential mortgages, which grew by 7.1 percent y-o-y in March.
The government had 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 percent margin of financing limit.
Working capital loans (22.4% of total outstanding loans) growth has also continued to grow, expanding by 2.7 percent y-o-y in March.
Further support will likely come from car loans (9.1% of total loans), which had seen a resurgence since H2Y20 on the back of aggressive promotional and marketing campaigns mounted by carmakers and we expect these to continue over in H1Y21 at least, providing a strong anchor for overall loan growth.
“Meanwhile, despite our expectations for the central bank to cut policy interest rates by 25bps to 1.50% in 2021 in a bid to support the economy against the headwinds posed by the third wave, net interest margins (NIM) will remain anchored around the 2.0 percentage points (pp) mark,” the research house stated.
This is because deposit and interbank rates are likely fall in tandem with lending rates. Indeed, despite the cumulative 125bps cuts to the Overnight Policy Rate (OPR) in 2020, NIM remained steady, averaging 2.2pp between January and December 2020.
“We continue to see downside risks to asset quality over the coming months, especially given that loan moratoriums have expired at the end of December 2020 after a three-month extension from September announced in July 2020.
“We attribute the steady level of non-performing loans (NPL) up to Q420 despite the severe economic slowdown in 2020, to this moratorium. The sector’s NPL ratio came in at 2.5% in Q121, holding steady compared to the 2.4% seen in Q420,” the research house added.