While tough pricing competition may weigh on margins, loans are expected to grow healthily in FY21 as we gradually exit the pandemic. Improved consumer and business confidence should support loan growth of mid-to-high single digit of 5-8%, in our estimation.
Improved credit outlook
GPs averaged 15bps in 4Q20, down from 31bps in FY20 (Figure 6). The drop signalled banks’ confidence that credit costs could normalise in FY21.
A better credit outlook is supported by a fall in loans under government relief programmes to 1-2% of loan books from 5% previously. GP reserves, which grew by 45-55% in FY20, should provide sufficient buffer for any asset-quality deterioration in FY21e.