PETALING JAYA: Despite a still supportive monetary and loan regime, businesses and consumers have continued to cut down on loans as Bank Negara's monetary and financial statistics for July released last Friday revealed.

The central bank's data showed a notable slowdown in total loan growth on a year-on-year basis in July to 12.9% from 13.5% in June.

CIMB Investment Bank Bhd economic research head Lee Heng Guie said in a recent report that loan indicators pointed to weak loan demand given the escalation in external headwinds.

“The weak loan indicators support our expectations that this year's loan growth will moderate to 11% to 12% from 12.7% in 2010,” he said.

Lee said with growth concerns taking precedence over inflation risks, the central bank would maintain the overnight policy rate (OPR) at 3% when the monetary policy committee meets on Sept 8 and the statutory reserve requirement unchanged at 4% as the massive capital inflows of the second quarter has moderated significantly.

“However, the central bank is likely to reassess its monetary stance in November, allowing it to gauge the impact of recent financial shocks on domestic economic conditions,” he said.

Lee maintains OPR rate forecast at between 3% and 3.25%.

Although this was the second month that loan growth eased, household loan growth sustained at 12.7% in July from 12.8% in June suggesting that consumer spending has continued while business loan growth slowed to 13.1% from 14.3% the previous month due to a one-off large repayment.

Lee said loan indicators pulled back sharply in July with loan applications growing by 8.5% from 29.9% in June largely due to households cutting back on purchases of residential property (up 9.8%), passenger cars (decline of 7.4%) and credit cards (decline of 3.2%).

“There was a significant decline in loan applications from the construction, transport, storage, and communication as well as education sectors,” he pointed out.

The statistics also showed loan growth approvals hit an eight-month low of 4.9% in July compared with June's 14.2% while loans disbursement almost halved to 7.6% entirely due to the businesses where loan disbursements to financial intermediation and education saw a sharp decline.

Meanwhile, analysts tracking financial stocks said loan growth could have peaked.

ECM Libra research head Bernand Ching expects growth momentum in property loans to taper off going forward with the May OPR hike starting together with a more stringent credit policy instigated by banks starting to take effect.