Singapore, July 12, 2012 -- Moody's Investors Service says the outlook for Malaysia's
banking system in 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," says Simon Chen,
a Moody's Analyst.
Chen was speaking at the release of a new Moody's report titled,
"Banking System Outlook: Malaysia," which is based
on the central scenario that Malaysia's economy will grow at a slower,
yet robust pace of 4.0% this year, from 5.1%
last year.
"Government spending this year will total 26% of GDP,
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% and 11%, which
is slightly lower than the 14% growth recorded in 2011,"
explains Chen.
Risk-adjusted profits for Malaysian banks are 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.
However, Moody's believes the banks will 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.
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 Moody's believes banks will have relatively strong capacity
to absorb related losses under a deteriorating environment.
Capitalization is strong. With the system's Tier 1 capital
ratio of 12.9% at end-April 2012, capital would
be sufficient to support asset growth over the next 12-18 months
and absorb a significant deterioration in operating conditions and asset
quality.
"Under our adverse scenario, which corresponds to a cyclical
recession with the impaired loans ratio rising to an average of 8%
from current level of 2.7% across the entire loan book,
our rated banks would maintain Tier 1 capital at above 10%,"
says Chen.
Moody's rates 8 commercial banks in Malaysia, which together accounted
for 81% of total banking system assets as of 31 December 2011.
Subscribers can access this report via this link: http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_142821.
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Simon Chen
Analyst
Financial Institutions Group
Moody's Investors Service Singapore Pte. Ltd.
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MD - Financial Institutions
Financial Institutions Group
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Moody's: Malaysia's banking system outlook stable