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Announcement:

Moody's: Malaysia's banking system outlook stable

Global Credit Research - 12 Jul 2012

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.

***

NOTE TO JOURNALISTS ONLY: For more information, please call one of our global press information hotlines: London +44-20-7772-5456, New York +1-212-553-0376, Tokyo +813-5408-4110, Hong Kong +852-3758-1350, Sydney +61-2-9270-8141, Mexico City 001-888-779-5833, São Paulo 0800-891-2518, or Buenos Aires 0800-666-3506. You can also email us at mediarelations@moodys.com or visit our web site at www.moodys.com.

Simon Chen
Analyst
Financial Institutions Group
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (65) 6398-8308

Stephen Long
MD - Financial Institutions
Financial Institutions Group
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077

Releasing Office:
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (65) 6398-8308

Moody's: Malaysia's banking system outlook stable
No Related Data.

 

© 2013 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

 


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