Malaysian banks stand firm against external headwinds - S&P

KUALA LUMPUR: Malaysian banks demonstrate robust asset quality and are well positioned to navigate external challenges, as highlighted in a chartbook-style commentary published today by S&P Global Ratings.

Titled "Malaysian Banking Sector Review: Standing Firm in the Face of External Headwinds," the chartbook underscores the superior asset quality of Malaysia's banks compared to regional counterparts, evident in lower credit losses and non-performing loan (NPL) ratios.

"Economic conditions are stable in Malaysia, which will support credit demand," noted S&P Global Ratings credit analyst Nikita Anand.

Nikita said an uptick in corporate borrowing, driven by key infrastructure initiatives, is anticipated to boost credit expansion to six per cent in 2024, up from five per cent last year. "Additionally, retail credit growth is projected to remain robust, while funding conditions are expected to stabilise with fixed deposit rates appearing to have peaked," she added.

She also highlighted the limited upside to profitability for Malaysian banks, with the sector's return on assets expected to remain flat at 1.2 per cent in 2024. "This is because net interest margins could decline further, especially if competitive pressures intensify in the country's saturated banking sector,” she said.

Moreover, she said the banking sector's exposure to currency depreciation risks is deemed manageable, given its limited direct exposure to external debt.

The sector's exposure to corporates with unhedged foreign currency liabilities represents a mere 0.5 per cent of total loans. "We anticipate a modest deterioration in asset quality. This could come from restructured loans for low-income households and small businesses," she continued.

Nikita also noted that sustained currency depreciation could impact import-reliant sectors such as manufacturing, construction, and agriculture.

She said stable labour market conditions, along with proactive write-off policies, are expected to assist banks in maintaining low NPL ratios. "Malaysian banks' stable capitalisation also provides ample loss-absorption buffer." - Bernama