KUALA LUMPUR: Loans in the banking system has maintained a 3.9 per cent growth year-on-year (YoY) in May 2021, mainly due to higher household loans growth of 6.1 per cent, rising with greater private consumption, while business loans ticked up by 0.9 per cent as business environment remained soft.

Kenanga Investment Bank Bhd, in a research note today, said month-on-month (MoM), total growth was flattish at 0.3 per cent but was led by better business loans of +0.4 per cent driven by the manufacturing sector and retail sector.

Household loans only inched up 0.2 per cent MoM, subsequently, loans disbursement declined by 1.8 per cent MoM with repayments also taking a hit by 4.5 per cent as lockdown impeded economic activity.

The investment bank has revised downward its loans growth expectation to between 3.0 per cent and 4.0 per cent from 4.0-5.0 per cent set previously for calendar year (CY) 2021, premised on a prolonged lull in economic activity impacting personal spending.

"The extension of the full lockdown was anticipated given the persistence of COVID-19 cases but comes as a blow to the banks.

"The newly announced six-month blanket moratorium, effective July 7, should help to cushion the financial difficulties of affected individuals and businesses but could come at the expense of some modification losses on the banks' part," it said.

Kenanga Investment Bank opined that as vaccination efforts progresses, more relaxed and sustainablemovement controls could allow economic activity to normalise and move towards recovery, but this might only materialise in the fourth quarter of CY2021.

It said economic growth could remain hindered should tight controls be upheld, delaying the prospects for recovery and could trigger the need for further provisioning by the banks.

-- BERNAMA