NDB Stockbrokers is forecasting the banking sector to ride on the post-war growth wave in the country with higher loan growth and profits.
“We expect the listed Licensed Commercial Banks (LCBs) to book an average loan growth of 25% in FY11, picking up from the average lending growth of 22.52% YOY recorded in FY10Q4. We believe the positive macroeconomic outlook will translate to higher demand for credit aided by the low interest rates,” NDB Stockbrokers said in an industry update on the banking, finance and insurance sector.
It listed SME – construction, agriculture, Corporate – leisure, energy, construction, trade, Personal – pawning, housing and leasing as sectors which are likely to boost loan growth in 2011.
Gross loans and advances of listed LCBs in 2010 recorded an impressive growth of 23% to Rs.862 billion compared to a negative loan growth of 6% in FY09. “Falling interest rates coupled with the increasing demand for credit resulted in a healthy loan growth. Gold-backed lending and housing loans were seen giving a boost to the loan growth of many banks,” NDB Stockbrokers said.
The report also opines that Non Performing Loans (NPLs) are unlikely to cause concern.
“Despite a high loan growth forecast, we anticipate the gross NPLs to reside around 6% in FY11 due to the improving debt servicing capacity of borrowers,” NDB Stockbrokers said, adding that exceptionally high NPLs are expected to decline in FY11, which will contribute to lower overall NPLs.
The broker also said the proposed tax cuts (Financial Services VAT – FS VAT – from 20% to 12% and Income Tax from 35% to 28%) are expected to boost industry lending and thereby result in higher profits.