PETALING JAYA: The robust loans applications growth backed up by the working capital segment last month hints a stronger corporate loans development going forward this year.

The outlook was also based on the overall loan growth for 2010.

AmResearch said the latest leading loan indicators were pointing to stronger corporate loans growth ahead, as evidenced by the robust growth in the working capital segment.

“This backs our investment thesis that top line growth may surprise on the upside, on the back of successful roll-out of projects under the Government's Economic Transformation Programme (ETP).

“Asset quality remains steady, with impaired loans ratio now at multi-year low levels.

“Thus, we do not believe there are any major risks in terms of asset quality and loan loss provisions ahead,” it said in a report yesterday.

Loans applications recorded a year-on-year (y-o-y) increase of 36.6% in December, 2010, compared with 13.3% y-o-y rate in the previous month.

This was driven mainly by the working capital segment, which grew by 117.2% y-o-y in December 2010.

In terms of asset quality, non-performing loan ratio decreased marginally to 1.97% in December 2010, compared with the previous month.

Loan-loss coverage increased to 99.6% in December 2010 against 97.5% in the previous month. (Loan-loss coverage defines the quality of its assets and how well it protects itself from losses caused by problematic loans).

Risk weighted capital ratio and core capital ratio increased marginally to 14.6% and 12.7% respectively in December 2010.

In terms of loans approved, growth rebounded to 17.4% y-o-y in December, 2010 from 4.7% y-o-y gain in the previous month.

“Again, this was backed by the working capital loans segment growth,” said AmResearch.

Overall, the whole of last year's loan growth of 12.8% to RM883.6bil against 2009 was the second strongest over the past decade.

Meanwhile, HwangDBS expected loans to grow at 13%, driving net interest income to grow at 8% amid the competitive net interest margin (NIM) environment this year.

“Projects under the ETP would drive more fund raising activities, while merger and acquisition transactions could surface with further divestment of government-linked companies.

“We expect the robust capital markets to spur higher non-interest income for banks around 17% this year.

On the other hand, ECM Libra expected loans growth to taper off due to its expectation that property sales growth might slow down in late this year.

“Residential and non-residential property loans which accounted for 44% of loans growth in 2010 are already showing signs of growth moderation. Residential loan approvals have contracted 3.8% y-o-y in December while non-residential loan approvals slowed to 30.2% from 47.3% in November 2010,” it said in a report.

ECM Libra added that loans growth would also be dampened by impending statutory reserve requirement increase and imposition of macroprudential lending measures by Bank Negara Malaysia in its latest monetary policy statement on Jan 27.

The main downside, according to AmResearch, is still NIM but it was encouraged by the latest surprising uptick in the average lending rate.

“We are modelling in a 13 basis points increase in NIM this year for the sector, assuming full-year impact from the three rate hikes last year.

“We expect weaker NIM in the consumer sector to be made up by a stronger corporate loans growth, which will lessen the need for banks to compete for consumer loans on pricing,” it said.