Bank loan

Loan Growth Expected to Hit 5% in 2022 Despite Rising Rates

PETALING JAYA: RAM Ratings predicts loan growth of 4.5% to 5% in 2022 despite rising interest rates, driven by the gradual reopening of the economy.

In a statement released yesterday, the rating agency said banks’ core pre-tax profits would see some upside this year, supported by more moderate impairment charges and further net interest margin expansion.

However, financial results would be weighed down by the one-time prosperity tax, while slowing global economic growth in the context of the Russian-Ukrainian war, the impact of higher inflationary pressures on consumer spending and shortages of Protracted labor continues to pose downside risks.

RAM Ratings observed a better performance of banking sector profitability in the first quarter of 2022 (1Q22).

In March 2022, loan growth largely maintained momentum at 4.6% year-on-year, supported by an increase in household loans while corporate loan expansion moderated.

His co-head of financial institution ratings, Wong Yin Ching, said various loan relief programs offered to borrowers amid the pandemic had temporarily removed bad debts.

“During this period, banks have strengthened their loss-absorbing buffers by proactively putting more provisions through management overlays.

“In 1Q22, the average cost of credit ratio of eight selected banks dipped to 18 basis points (bps) annualized (1Q21: 57 bps; 2021: 49 bps) due to lower management recoveries and even a significant recovery seen in one bank,” she added.

The rating agency expects the banking system’s cost of credit ratio in 2022 to be at the lower end of its forecast by 40 to 50 basis points, Wong said.

“For most banks, any major provision release will likely take place in 2023, as repayment trends for borrowers who have just exited emergency assistance will only become evident over time,” he said. she adds.

Based on the latest quarterly earnings information from the eight banks, the share of loans with repayment relief almost halved to around 8% at end-April 2022.

At the end of March 2022, the gross impaired loan ratio of the banking sector stood at 1.54%, which included the impairment of two large oil and gas exposures. Defaults are expected to increase in the coming months as borrowers resume repayments. — Bernama