Malaysian banks to remain resilient amid S&P's negative outlook

RHB Global Economics viewed S&P’s move likely to be in response to the government’s further request for the interest waiver on the B50 segment for three-month, beginning October 2021 after the six-month opt-in loan moratorium earlier and the automatic moratorium last year.

KUALA LUMPUR: RHB Global Economics and Market Strategy expects Malaysian banks to remain resilient amid Standard Poor's (S&P) reaffirmation of its negative outlook.

In a statement on Friday, the rating agency viewed downside systemic risks for Malaysian banks are on the rise.

“We consider that the economic risk trend for Malaysia has turned negative. Banks are also facing rising risk in the competitive environment due to negative government intervention,” S&P had stated in a statement.

However, in its analysis, RHB Global Economics and Market Strategy viewed S&P’s move likely to be in response to the government’s further request for the interest waiver on the B50 segment for three-month, beginning October 2021 after the six-month opt-in loan moratorium earlier and the automatic moratorium last year.

“The increased risk of government intervention in the Malaysian banking sector is negative, which could lead to further deterioration in asset quality.

“We do not expect any price reaction on the banks bonds from this comment, credit spread to remain steady as evident from previous outlook downgrade last year,” it said.

Earlier, S&P also affirmed its 'BBB+' long-term and 'A-2' short-term issuer credit rating on AmBank (M) Bhd. and RHB Bank Bhd. The outlook on all the five Malaysian banks is negative.

S&P had stated in its base case, it expects the banking industry's non-performing loan (NPL) ratio to reach 3%-4% and credit costs to stay at 55-60 basis points (bps) annually over 2021 and 2022, before recovering gradually.

It had forecast Malaysia's GDP to grow by 6% in 2022, and the unemployment rate to improve to 4.4%, although the rate will still be high.