Banks face rising asset risks as macroeconomic conditions worsen

PETALING JAYA: Malaysian banks’ asset risks will rise in 2019, as deteriorate for export-oriented sectors, said Moody’s vice-president and senior analyst Simon Chen.

“Profitability will also fall, as slows and credit costs rise. Nevertheless, the banks’ capital buffers will further improve, due to slower asset growth; thereby helping the banks withstand the higher asset risks,” he said in a statement today.

The expected weak export-oriented sectors, particularly electronics, construction and real estate, is attributable to a slowdown in global trade and weaker economic growth.

However, Moody’s said this will not result in a sharp increase in impaired loans, with robust domestic consumption and stable employment conditions supporting asset quality.

Systemwide growth grew to 5.6% in 2018 from 4.1% in 2017, because of a gradual recovery in demand among corporates and households, partially as a consequence of the removal of a goods and services tax.

For 2019, the rate is expected to fall back to about 4-5% in 2019, as slower economic growth and uncertainty around the new government’s longer-term policy stance suppress loan demand among businesses and households.

Most Malaysian banks rated by Moody’s reported improvements in asset quality and capitalisation in 2018 but profitability was mixed.

Although profitability will weaken this year, the rating agency said capital generation will continue to outpace capital consumption due to weaker loan growth, leading to further rises in capital ratios. At the same time, deposit growth will continue to outpace loan growth as banks prepare for net stable funding ratio implementation.

The impaired loan ratios of most Moody’s rated Malaysian banks fell at the end of 2018 on the back of the slower formation of new impaired loans at home and overseas, loan repayments and write-offs.

Source: The Sun Daily

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