After GE14, Malaysian banking system remains resilient, says Moody's

The 25 basis point increase in the Overnight Policy Rate (OPR) will benefit fixed deposit (FD) savers after the real rate of return on deposits will return to positive in 2018.

KUALA LUMPUR: Following the shocking win by the Pakatan Harapan (HP) in Wednesday's 14th General Election, Moody’s Investors Service views the Malaysian banking system is resilient to market volatility, given the banks’ strong capital and liquidity buffers.

“We are closely following the developments around some campaign promises that could have a negative impact on market sentiment and trigger volatility in the financial markets,” says Simon Chen, vice-president – senior analyst, financial institutions group. 

He said these dynamics will take time to unfold and a lot will depend on what the new government unveils in the coming weeks and months.

“If investor sentiment worsens materially, we will see increasing risks of capital outflows and a further weakening of the ringgit, that could in turn dampen private sector consumption and operating conditions for banks in Malaysia.

“Capital outflows could also lead to deposit outflows and a tightening of liquidity conditions in the banking sector. However, we acknowledge that the system has weathered challenging periods, in particular, during the 1MDB allegations,” said Chen.

Chen is the lead analyst for Malaysian banks such as AmBank, CIMB Group, Cagamas Bhd, and Public Bank Bhd.