The ratings agency had on Tuesday did caution that pockets of vulnerability remain in banks' exposures to lower-income households and personal loans.
“The household sector accounts for roughly 58% of bank gross loans, about 37% of which is to lower-income borrowers (those earning up to RM5,000 a month).
“Such borrowers often have limited asset buffers to mitigate the risk of default, and while banks' exposures to them tend to be secured, loan-to-value (LTV) ratios can be high, weakening recovery prospects. About 28% of banks' overall home loans have LTV ratios over 80%,” it said.
Fitch pointed out household incomes remain key to supporting their debt service capacity and broader economic activity.
“In this respect, unemployment - as a driver of household income - has been resilient in previous economic cycles, and we expect it to remain the case in the near term.
“The banking system's common equity Tier 1 ratio of about 13.5% at end-April 2019 also suggests healthy loss-absorption capacity in the event of potential stress,” it said.
Fitch believes that bank lending standards for households have remained broadly steady since the regulator's tightening measures over 2010-2013.
“We expect this discipline to continue, but we remain watchful for any significant easing in standards that could cause risks to accelerate once more,” it said.
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