KUALA LUMPUR: Most banking institutions in Malaysia have
completed their policy fine tuning to comply with the responsible lending guidelines introduced by Bank Negara Malaysia.

The sluggishness and volatility in the banks is thus expected to normalise going forward, said Alliance Research.

It also said despite having a slow start in early 2012, overall
domestic lending activities are picking up.

This, it added, follows the stronger growth of business loans stemming from the roll out of Entry Point Projects (EPPs) under the government Economic Transformation Plan (ETP), which filled up the vacuum left by the moderation in property loans.

Despite the month-on-month moderation in the lending indicators in June 2012, the research house remains optimistic about the continued vibrant domestic lending activities going forward.

"We are maintaining our forecast of 11 per cent domestic loans growth in 2012, for now.

"Nonetheless, we now foresee that there is an increasing likelihood of an upside risk to our domestic loans growth forecast for 2012, in view of the strong pick-up of loans in June, although our loans growth estimate has already
been more bullish than consensus," Alliance said in a research note today.

For the month of June, loan application, loan approval and loan
disbursements activities declined by 0.5 per cent, 11.5 per cent and 1.4 per cent on a month-on-month basis to RM76.2 billion, RM37.3 billion and RM88.4 billion, respectively.

On a year-to-date annualised basis, outstanding loans grew by 12.7 per cent in June, an increase compared with the 11.4 per cent registered in May.

Average Base Lending Rate (BLR) of commercial banks in June remained constant month-on-month at 6.53 per cent.

"Although property loans remained the key driver, where loans to purchase residential and non-residential properties constituted 46 per cent of the annualised 12.7 per cent loan growth for June, we observed that other purpose loans and working capital have been gathering pace.

"This contributed 28.8 per cent and 22.3 per cent of the loan growth drivers, respectively.

"We also acknowledge that business loans have recorded a commendable annualised growth of 15.9 per cent, ahead of household loans' annualised growth rate of 10.1 per cent," Alliance Research added.

Meanwhile, Alliance Research has maintained the "overweight" call on the banking sector, with Hong Leong Bank serving as its top pick for the sector.

For mid-cap banking exposure, the research firm preferred Affin Holdings, a bank that has a turnaround story, and offers good proxy to the merger and acquisition theme but has been persistently overlooked by investors. -- BERNAMA