MALAYSIAN banks saw domestic loans expand by a healthy 12.8 per cent to RM883.6 billion last year, helped by growth in the business and retail segments.
This is slightly better than analysts expected, but most expect the growth rate to moderate this year.
"We expect loans growth to taper off due to our expectation that property sales growth may slow down in late 2011," said one from ECM Libra Investment Research, which has a "neutral" investment call on the banking sector.
Residential and non-residential property loans, which accounted for 44 per cent of loan growth last year, are already showing signs of growth moderation, he noted.
Residential loan approval in December contracted by 3.8 per cent from a year ago, while non-residential loan approval slowed to 30.2 per cent from 47.3 per cent in November, according to Bank Negara Malaysia (BNM)'s latest monthly data released on January 31.
OSK Research and RHB Research, however, maintained their "overweight" call on the sector.
OSK expects loans growth this year to remain "robust", while RHB expects it to moderate to 8 per cent to 9 per cent after the high-base effect last year, saying the growth is also in line with a more moderate increase in economic activities and pick-up in capital market fundraising activities.
It expects consumer spending to remain relatively resilient, which would help provide support for demand for loans from the household segment.
"In our view, a new economic cycle has begun and during the early stage of an economic upturn, we believe the banking sector would help take the lead in lifting the market to higher grounds," RHB said in a note to clients after BNM released its latest data.
CIMB Group was its top pick for exposure to large-cap banking stocks, while Affin Holdings was its favourite within the small-mid cap space.
Other stocks it liked were Malayan Banking (Maybank), Public Bank and Hong Leong Bank.
HwangDBC Vickers Research, however, sees lending growing at a strong 13 per cent, driving banks' net interest income to grow by 8 per cent even as margins come under pressure.
"We maintain our view that the sector is poised for a re-rating as we forecast the banks to deliver solid 16 per cent earnings growth and a record 16 per cent return-on-equity in 2011," it said.
Its top picks are Maybank and RHB Capital.
Banks' asset quality remained robust in 2010, with a gross non-performing loan (NPL) ratio at 3.2 per cent as at end-December compared with 3.7 per cent a year ago. Net NPLs, including impaired loans, remained stable at 2 per cent.