BANKS remain willing to lend to bankable households and businesses, and has approved roughly three out of four housing loan applications they receive.

In an article titled “Banking on Banks: Are They Lending Enough?”, Bank Negara said in January to September this year, banks approved housing loans worth RM119 billion for about 273,000 borrowers, of which 42% were first-time home owners.

It said loan rejections in this segment stemmed from a broader issue of home affordability, which becomes readily apparent when 72% of rejected applications are for the purchase of homes that are either seriously or severely unaffordable relative to the applicant’s income level.

Since 2016, household personal financing and housing loans have been growing more in line with incomes, the article said.

In the SME segment, banks have been approving about seven to eight out of every 10 loan applications received.

This equates to RM50 billion in loans approved this year, higher than the three-year average of RM48 billion for the same period, benefitting about 76,000 SMEs.

For SMEs, loan rejections were found to be most commonly associated with younger businesses with incomplete financial statements and negative net worth.

Structurally, Bank Negara said growth in bank lending has stabilised to more moderate levels as compared with the strong credit growth during 2010-2014, a period of exuberant consumption credit and property-related lending.

“Outstanding loans from the banking system have registered a more moderate expansion. As at end September 2019, the annual growth in outstanding loans from the banking system moderated to 3.8% from 5.6% in 2018 and 4.1% in 2017.

“The moderation in credit growth reflects both structural and cyclical trends,” the bank said.

It said the gradual moderation in credit expansion partly reflects the outcome of a deliberate and measured policy strategy to manage risks from high household indebtedness and to curb excessive speculative activity in the housing market.

It said banks have a natural incentive to lend to generate revenue and, in the case of Malaysian banks, net interest income comprises 64.8% of their gross income.

“Over the years, this incentive to lend has grown stronger as banks’ profit margins have come under greater pressure due to strong competition among banks for market share.

“Faced with narrowing margins, the ability of banks to grow lending volume has become more important to maintain profitability,” it said. – Bernama, December 6, 2019.