PETALING JAYA: Banks in emerging markets (EMs) including Malaysia will face three main risks, encompassing a deterioration in asset quality, no thanks to the Covid-19 pandemic.
S&P Global Ratings said the Covid-19 pandemic and its aftermath will continue to dominate the credit story for EMs in 2021.
It said in a statement yesterday that it had analysed 15 banking systems among the largest EM economies, namely, Argentina, Brazil, Chile, China, Colombia, India, Indonesia, Malaysia, Mexico, the Philippines, Russia, Saudi Arabia, South Africa, Thailand and Turkey.
“Across the same, we have identified three main risks that their banking systems will face in 2021, ” it said.
The rating house said these comprised an expected deterioration in asset quality indicators as regulatory forbearance measures are lifted, the volatile geopolitical environment and, in some cases, domestic policy uncertainty, and finally, for a few banks, the vulnerability to abrupt movements in capital flows.
“As vaccine rollouts in several countries continue, S&P Global Ratings believes there remains a high degree of uncertainty about the evolution of the coronavirus pandemic and its economic effects, ” it said.
However, it noted that widespread immunisation, which certain countries might achieve by mid-year, will help pave the way for a return to more normal levels of social and economic activity.
It opined that central banks in developed markets were likely to keep exceptionally accommodative monetary policy for now.
“For EMS – with some key exceptions – this should translate into a stronger economic recovery and favourable financing conditions.”
That said, risks related to vaccine distribution and a spike in Covid-19 cases remain acute for EMs, and this may delay the economic rebound and increase risks for their banking systems, the ratings house added.
Like its counterparts, Malaysian banks had a tough year in 2020 and the outlook for this year remains uncertain, hinging on things like the overnight policy rate, the impact of a prolonged targeted moratorium and the level of consumer confidence.
Last April, owing to Covid-19, a blanket moratorium – a halt to loan payments – was applied to all Malaysians regardless of their need for it.
To be exact, the blanket moratorium had benefited more than 90% of total borrowers in the country, with some 7.7 million individuals and over 200,000 SMEs taking it up.
As a result, banks took a hit. A more targeted moratorium has now replaced the blanket moratorium and the impact of this on the earnings of lenders is yet to be seen.
In the most recently-concluded quarter, the two largest banks in the country, reported a decline in their net profits on a year-on-year basis.
Malayan Banking Bhd said it made a net profit of RM1.95bil for its latest quarter, compared to almost RM2bil earlier.
In the case of CIMB Group Holdings Bhd, the fall in income was steeper, with the banking group reporting a net profit of RM194.4mil against more than RM1bil for the same period a year ago.
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