Banks face tight interest margins, eroding income

DESPITE a good year in 2002, banks will face a major challenge in maintaining profitability as competitive forces squeeze interest margins and erode their largest income source. 

Net interest income experienced near flat growth last year and contributed little to the banking industry’s 2.2% growth in operating profit to RM11.1bil. The banks’ pre-tax profit rose by a more significant margin of 34.5% to RM9.3bil in 2002, from RM6.9bil the previous year, but these increases were attributed largely to higher recoveries, lower provisioning requirements, and greater revenues from fee-based activities.