Credit analyst Nancy Duan said specifically, higher capital spending, a booming oil and gas market, and the competitive financing cost of bank loans amid capital market volatility will revive loan demand among big corporates.
"It will take longer for consumer and small and medium enterprise (SME) lending to recover as a result of the still fragile consumer confidence, the magnitude of the SME stress throughout COVID-19, higher inflation, and already elevated household indebtedness,” she said in a statement today.
Duan said Malaysian banks would face more downward pressures on net interest income (NIM) in the first half of 2022 as their funding cost starts to rise and deposit competition intensifies.
The NIM, however, could stabilise in the second half since Bank Negara Malaysia will likely hike its overnight policy rate by 25 basis points by June, which means local banks will benefit from somewhat rising loan yield, she projected.
Duan foresees the local banking sector’s credit cost would not be normalising to the pre-COVID levels anytime soon, unlike its peers in Singapore.
Meanwhile, she said banks could start unwinding the accumulated provision buffer for non-impaired loans in the second half of 2022, once the dust of moratorium uncertainties settles and this could meaningfully reduce the need for additional provisions despite rising nonperforming loans (NPLs).
On a broader picture, she said a bounce-back in 2021 profits does not tell the full story for Malaysian banks, and the uneven recovery of loans under moratorium will continue to weigh this year.
"We are likely to materially revise down our 2022 sector credit cost forecast from the current 55-60 basis points if Malaysia's economic recovery remains firm and the transition to an endemic phase proceeds as planned."
Duan said at least two drivers of last year's profit bounce are likely to stay on track: lower credit costs (a gauge of provisions) and accelerating loan growth.
"However, the margin improvement last year has likely run its course for now. And NPLs could rise to 2.5 per cent-3.0 per cent in the next 12 months after various moratorium programmes expire by mid-2022, as planned. That compares with a 1.4 per cent NPL ratio in 2021.
"Borrowers from SMEs and low-income households are the most vulnerable segments under the loan-relief schemes offered by Malaysian banks. Lenders that have larger loan exposure to SMEs and the mass-market consumer banking will lag in their recovery behind those with established niches in the wealthy retail segment and big corporate.
"We estimate that credits to SMEs and low-income households account for roughly 30 per cent-35 per cent of the industry-wide loan book,” she added.
In addition, she said the recently announced RM40 billion government relief programme that specifically targets micro, SMEs and the informal sector would help facilitate much-needed business recoveries for small businesses. Still, this is unlikely to forestall the weakening underlying credit trend of those borrowers.
On the other hand, Duan noted the sector's high provision coverage of non-impaired loans at around 1.3 per cent as at end-2021 is a positive for credit costs. This compares with the low 0.8 per cent coverage pre-COVID-19. - Bernama