PETALING JAYA: Loans growth is envisaged to improve next year in line with the overall economic recovery, say industry players.

OCBC Bank (M) Bhd director and chief executive officer Jeffrey Chew said loans growth for 2010 was expected to be even more robust than this year, with key contribution coming from corporates as well and government-linked companies (GLCs), which would have benefited from the various stimulus packages launched early this year as well as the returns gained from export volumes.

“This would in turn increase trade finance activities,” he added.

Generally, Chew sees stronger loans growth coming from business segments such as telecommunications, information and commmunications technology (ICT) and export-oriented manufacturing as a result of the recovery.

RHB Banking Group head of retail banking Renzo Viegas said the bank’s overall loans growth this year was projected at around 7% to 9%.

“We are optimistic that loans growth will remain intact and expect marginally higher loans especially by the second half of next year, driven by mortgage loans, hire purchase, personal loans and small and medium-scale enterprises (SMEs) loans, attributable to the various stimulus packages offered by the Government to SMEs,” he added.

According to Malaysian Rating Corp Bhd (MARC) vice-president and head of financial institution ratings Anandakumar Jegarasasingam, loans to the manufacturing and trading sectors, which have seen a contraction in growth since the advent of the global crisis, would be among the first sectors to see a pick-up in loans growth in the second half of next year.

This is in line with MARC’s projection that there would not be a significant increase in loans growth during the first half of 2010 as the impending economic recovery may not be sustainable.

“However, should the global macroeconomic conditions improve in the first half of next year and the Malaysian economy sustain its recovery, we may see moderately high loans growth during the second half of 2010,” Anandakumar said.

RAM Rating Services Bhd head of financial institutions ratings Promod Dass expects loans growth to be around 7% to 8% for this year.

“In line with our forecast of 4.9% of gross domestic product growth in 2010, we anticipate loans to expand about 10% in 2010,” he added.

Loans growth in the banking system remained stagnant at 7.2% year-on-year in September compared with 7.3% year-on-year in August, according to September banking data.

The slowdown in overall loans growth was led by the weakening in the business loan segment. The data showed declining trends in working capital as well as SME loans.

Overall loans growth was underpinned by relatively stable household loans such as residential properties and personal loans, which grew by 9.1% in September (August: 9.1%)

However, working capital loans growth continued to shrink, contracting by 1.3% in September (August: -1.4%).

Loan applications by SMEs also continued to decline 5.1% year-on-year in September against a 1.8% year-on-year contraction in August.

Loan approvals for the SMEs segment, however, saw a 18% year-on-year growth compared with a 10.9% contraction in August.

Businesses also experienced a slower contraction in loan applications, registering a decline of 8.2% (August: 44.3%).

Another worrying sign was that business-related non-performing loans (NPLs) with loans to the securities, construction and working capital segments showed respective increases of 7.8%, 15% and 4.9% on a quarter-on-quarter basis.

According to ECM Libra Investment Research’s latest report, loans growth had understandably slowed to 7.2% year-to-date in line with the sharp weakening in economic activitiy globally as well as domestically. Loans grew by 12.8% last year.

“The shrinkage in business loan applications and rise in business-related NPLs are worrying signs and may have a telling effect on economic activity,” ECM Libra added.

ECM Libra forecasts loans growth at 5% to 6% in 2009 and reverting to a stronger 7% to 8% growth going forward.

Meanwhile, a banking analyst from a foreign brokerage expects business loans to remain flattish throughout the year and probably till next year, depending on the level of economic recovery.

She expects many of the businesses to go into the bond market to tap funds.