The banking industry's loan growth continued to ease from 5.5% year over year (y-o-y) at end-January 2019 to 5% y-o-y at end-February 2019 and CIMB Equities Research projects loan growth of 5% for this year.
In its research note issued on Monday, the research house said February was the third consecutive month of a slowdown in loan momentum.
"Both major loan segments witnessed a softening in pace - from 5.5% y-o-y at end-Jan 19 to 5.2% y-o-y at end-Feb 19 for household loans and from 4.8% y-o-y to 4.3% y-o-y for business loans.
"Industry's loan base grew by a lackluster 0.1% in 2019. This reaffirms our expectation for a slowdown in loan growth from 5.6% in 2018 to a projected circa 5% in 2019," it said.
The contraction in leading loan indicators widened in Feb 19 to 14% y-o-y for loan applications (vs. -5.4% y-o-y in Jan 19) and 6.7% y-o-y for loan approvals (vs. -4.8% y-o-y).
These were mainly dragged down by contractions in the residential mortgages and auto loan segments (as well as working capital loan segment for loan applications).
"The weak loan applications/approvals in Jan-Feb 19 bode ill for banks' loan growth over the next one to two months, in our view," it said.
Although banks' gross impaired loan (GIL) ratio increased from an all-time low of 1.45% at end-Jan 19, it remained comfortable at 1.48% at end-Feb 19. Meanwhile, the loan loss coverage fell from 97.5% at end-Jan 19 to 96.2% at end-Feb 19.
"We continue to rate Malaysian banks as a Neutral given the concerns over margin erosion and an uptick in credit costs. On a positive note, the sector's dividend yield is attractive at a projected 4.1% for forward calendar year 2019 (CY19F). RHB Bank remains our top pick in the sector," it said.