Moody’s Investors Service’s outlook for Malaysia’s banking system over the next 12 to 18 months is stable.
“Moody’s expects the Malaysian government’s expansionary policies to support credit growth, despite a slowing economy due to lower demand for exports from the country’s main trading partners the US, Europe and China,” Moody’s analyst Simon Chen in a statement yesterday.
The ratings agency also expects Malaysia’s economy to grow at a slower, yet robust, pace of 4 percent this year, compared with 5.1 percent last year.
“Government spending this year will total 26 percent of GDP (gross domestic product), on commercial and fiscal projects that will attract private sector investment, and provide support to domestic business activities and employment.
“We expect loans to grow by between 9 percent and 11 percent, which is slightly lower than the 14 percent growth recorded in 2011,” Chen said.
Risk-adjusted profits for Malaysian banks were expected to fall modestly, due to moderating credit growth, lower net interest margins, and rising cost pressures for those banks aiming to boost their offshore operations, the ratings agency said.
However, Moody’s said Malaysian banks would continue to expand regionally because of intense domestic competition, high credit penetration and abundant liquidity.
“They will also try to compensate for lower loan growth by taking up opportunities from the retreat of European banks in the region, expanding their opportunities in Islamic banking, and focusing on stable fee-generating businesses like wealth management and bancassurance,” the statement said.
Meanwhile, Moody’s expects asset quality to remain resilient, supported by low unemployment, continued growth in household incomes and low corporate leverage.
Should the operating environment deteriorate further than expected, however, sectors vulnerable to loan delinquencies would include export-oriented manufacturers, highly-leveraged households and mortgages with high loan-to-valuations relating to speculative segments of the property market.
But it said that banks would have relatively strong capacity to absorb related losses under a deteriorating environment.
“Capitalisation is strong. With the system’s Tier 1 capital ratio of 12.9 percent at end-April 2012, capital would be sufficient to support asset growth over the next 1218 months and absorb a significant deterioration in operating conditions and asset quality,” the statement said.
Moody’s rates eight commercial banks in Malaysia, which together accounted for 81 percent of total banking system assets as of December 31, 2011.